Cutting Rates in Q4 Given Expected Economic Evolution

Atlanta Federal Reserve Bank President Raphael Bostic recently discussed his forecast for the US central bank to lower the policy rate just once this year in an interview with CNBC on Wednesday. Despite maintaining strong momentum, Bostic believes that the economy may experience some incremental weakening and that it needs to slow down in order to reach its longer-run potential. However, he still expects growth and inflation to continue, albeit at a slower pace than anticipated.

Bostic emphasized the need for patience in this environment, as inflation is likely to decrease at a slower rate than expected. He adjusted his forecast to include only one rate cut this year, with a potential cut in the fourth quarter if the economy evolves as he expects. Bostic projects that inflation will decrease gradually through 2024 and may not reach the 2% target until 2026.

Bostic noted that while there may be potential bumps in the road ahead, he is not eager to disrupt the economy’s dynamics as long as inflation is moving towards the target rate. He mentioned that any degradation in employment would need to be taken into consideration but stated that his contacts have not expressed concerns about employment.

The market did not show an immediate reaction to Bostic’s comments, with the US Dollar Index losing only 0.04% on the day at 104.70. Overall, Bostic’s cautious outlook and forecast for a single rate cut this year suggest a measured approach to monetary policy in response to the changing economic landscape.

By Riley Johnson

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