Federal Reserve Bank of Atlanta President Raphael Bostic said that the central bank’s decision to start its rate-cutting cycle with a substantial half-point move will help stabilize the labor market and bring interest rates closer to a neutral level. However, Bostic cautioned that officials should avoid committing to further large cuts due to ongoing uncertainty about inflation.
In a speech delivered at a virtual event organized by the European Economics and Financial Centre, Bostic emphasized the need to remain flexible, as the risk of inflation returning remains a concern. He noted that the labor market is weakening, but not yet weak.
Bostic explained that the larger-than-expected rate cut was a necessary step to ensure the U.S. labor market remains strong amid ongoing economic uncertainties. Last week’s decision to reduce interest rates by half a percentage point surprised many economists, but Federal Reserve Chair Jerome Powell said the move was meant to provide solid support for the labor market.
Bostic echoed Powell’s sentiment, saying the Fed is committed to not falling behind as the labor market adjusts and inflation cools. “My residual concern about inflation might have led me to settle on a relatively small first move last week — say, 25 basis points. But such a move would belie growing uncertainty about the trajectory of the labor market,” Bostic said.
Inflation Progress and Labor Market Outlook
Bostic also shared encouraging data on inflation, noting that the Fed’s preferred gauge, the personal consumption expenditures (PCE) price index, is close to the central bank’s 2% target. The PCE index stands at 2.5%, with core inflation — which excludes food and energy — rising at an annualized rate of 1.7% over the last three months. Core services prices, excluding housing, are also cooling.
On the employment front, Bostic acknowledged that the labor market is showing signs of slowing, with rising unemployment and fewer job openings compared to last year. However, he stressed that the labor market is still relatively strong. “The labor market is not yet flashing red for me,” he said, noting that the Fed remains watchful for further signs of weakness.
The Path Ahead for Rate Cuts
While the Fed’s large cut has set the tone for stabilizing the economy, Bostic made it clear that officials are prepared to slow or pause further rate cuts if inflation stalls. The Fed’s approach remains flexible, with officials closely monitoring both inflation and employment trends. Bostic added that “any further evidence of material weakening in the labor market” would impact future policy decisions.
He emphasized the importance of keeping a balanced view of risks as the Fed works to bring interest rates closer to neutral territory. “The 50-basis-point adjustment at the meeting last week positions us well should the risks to our mandates turn out to be less balanced than I am thinking,” Bostic said.
As the Federal Reserve navigates the complexities of rate cuts and economic recovery, Bostic’s remarks highlight the importance of flexibility in monetary policy. While the large rate cut aims to support the labor market, the Fed remains cautious about inflation risks, prepared to adjust its approach based on evolving economic data.
