Fed’s Bostic is out with some comments on the economy and policy, saying:
- Does not expect new burst of inflation, though uncertainty is widespread.
- Businesses are optimistic about deregulation but apprehensive about impact of tariff, immigration changes.
- Expects inflation to ease and expectation to remain anchored.
- Overall expectation is for inflation to continue to slowly decline to 2%.
- Businesses say they would try to pass along import taxes to consumers.
- Labor market showing signs of easing, such as difficulty finding a job, but is broadly stable.
- Monetary policy currently in a good place, but this is not a time to be complacent about risks.
- Still sees two Fed rate cuts this year, with a lot of uncertainty.
- Says much could happen to yield more or fewer rate cuts.
- Says inflation data has been bumpy and that is likely to continue.
- Still thinks biggest risk to the Fed’s mandate is from inflation; 2% is the target and the U.S. central bank is not there.
- The aim is still to get to the 2% target without damage to the labor market.
- Possibility of slowing quantitative tightening is not just about the debt ceiling, but also because the Fed does not want to overshoot.
- Does not want its balance sheet to become a source of instability.
- Fed will want to review its current framework language about maximum employment to see how it worked in practice.
- Says he is still trying to understand implications of Trump executive order on the Fed’s role in financial regulation.
- Fed’s current benchmark interest rate is moderately restrictive versus a 3%-3.5% neutral rate.
The comments are mixed:
Dovish Signals (More supportive of rate cuts or easing policy)
- Inflation expectations remain anchored and are expected to slowly decline to 2%.
- Monetary policy is currently in a good place, though risks remain.
- Sees two rate cuts this year, despite uncertainty.
- Labor market is showing signs of easing, though still stable.
- Concern about slowing quantitative tightening suggests the Fed wants to avoid over-tightening.
- Does not expect a new burst of inflation, despite widespread uncertainty.
Hawkish Signals (More supportive of keeping rates higher for longer)
- Biggest risk to the Fed’s mandate remains inflation, and the Fed is not at 2% yet.
- Inflation data has been bumpy and likely to continue, which implies uncertainty about further declines.
- Still studying the impact of policy changes, suggesting caution before shifting to easier policy.
- A slowdown in the economy due to policy shifts is a material concern, but businesses expect 2025 to be strong, meaning the Fed may not need to act aggressively.
Overall Takeaway
While Bostic acknowledges the risks of inflation and remains cautious about rate cuts, his comments lean slightly dovish due to expectations of declining inflation, signs of labor market cooling, and openness to rate cuts this year. However, he is not fully committed to easing policy yet, as uncertainty about inflation remains.
