The Federal Reserve has stressed that it is waiting for inflation data to provide enough confidence that inflation is returning to the 2% target before initiating a rate cutting cycle. As markets have priced in three potential rate cuts, with the first predicted to arrive in June, Atlanta Federal Reserve President Raphael Bostic joins Yahoo Finance Fed reporter Jennifer Schonberger to share his perspective on the rate cut outlook and the economic landscape.
Bostic describes the US economy as "incredibly resilient," expressing particular gratitude for strength in the labor market. However, he acknowledges the possibility of an economic slowdown, though not as much as he had originally anticipated in January.
The Atlanta Fed president points to "volatility" in labor data, highlighting certain factors he is closely monitoring. Bostic will continue to analyze job growth on a sector-level basis, having observed disproportionate growth in government and healthcare. These sectors are "playing catch-up" from pandemic-induced lags, he says. Bostic also commented on the improving balance between labor supply and demand.
On the inflation front, Bostic expects "bumpiness" on the path to the 2% target in 2024. He cites evidence of inflation "stalling out a bit" in the first quarter and anticipates the services sector to remain "persistently higher" in terms of price pressures.
Bostic’s current rate outlook remains at one cut, but he acknowledges two potential scenarios that could solidify or alter this view. If the economy accelerates, he will continue the "more patient" approach to rate cuts, but if the economy slows, he would be inclined to "pull in" his rate cut outlook to support the economy sooner. However, given current economic resilience, he suggests that "rate cuts may even have to move further out."
Bostic emphasizes that his outlook is not solely influenced by top-line inflation numbers, but by the broader distribution of price increases across various sectors. He studies the "totality of those measures" to determine whether inflation is normalizing towards the 2% target before feeling confident about initiating a rate cutting cycle.
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