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Fed’s Raphael Bostic expects rate cuts to come in Q3

by SuperiorInvest

Raphael Bostic in Jackson Hole, Wyoming

David A. Grogan | CNBC

Atlanta Federal Reserve President Raphael Bostic expects policymakers to begin cutting rates in the third quarter of this year and said Thursday that inflation is on track to return to the central bank’s target.

Bostic, a voting member this year on the rate-setting Federal Open Market Committee, said the future goal is to calibrate policy so that it is not so restrictive as to stifle growth while also acting as a bulwark against persistently high prices.

However, he said a “golden path” scenario for curbing inflation while promoting strong growth and healthy employment is getting closer than many Fed officials had expected.

“As I rely on data, I factored unexpected progress in inflation and economic activity into my outlook and therefore brought forward the projected time to begin normalizing the federal funds rate to the third quarter of this year from the fourth quarter. “. Bostic said in remarks prepared for a speech to business leaders in Atlanta.

While the comments help illuminate a timeline for rate cuts, they also serve as a reminder that Fed officials and market participants have different expectations about policy easing.

Current prices in the federal funds futures market point to the first cut coming in March, according to CME Group’s FedWatch measure. The implied probability of a quarter-percentage-point reduction has declined in recent days, but as of Thursday morning it was still hovering around 57%. Prices also indicate a total of six cuts this year, or one at every FOMC meeting except one starting in March.

Bostic said he is not determined to cut before the third quarter, implying a move in July at the earliest, but he said the bar will be high.

“If we continue to see further accumulation of downside surprises in the data, I may feel comfortable enough to argue for normalization ahead of the third quarter,” he said. “But the evidence would have to be convincing.”

Several factors could change the calculus, including geopolitical conflicts, the current budget battle in Washington and the impending presidential election, to name a few that Bostic cited.

For this reason, he advocated caution and stated that his attitude will be “grateful and vigilant.”

“In such an unpredictable environment, it would be unwise to take an emphatic approach to monetary policy,” Bostic said. “That’s why I think we should allow events to continue developing before starting the process of policy normalization.”

Some of the data points he said he will be watching include overall economic growth, inflation readings such as the Commerce Department’s Personal Consumption Expenditures Price Index, and data on job growth and losses.

The Labor Department reported Thursday that initial jobless claims hit their lowest level since September 2022, a sign that the labor market remains tight.

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