2024-01-19 10:41:00
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Investing.com – Atlanta Federal Reserve President Rafael Bostic expects policymakers will start cutting interest rates in the third quarter of this year, saying Thursday that inflation is on track to return to the central bank’s target.
Bostic, a voting member this year of the Federal Open Market Committee that sets interest rates, emphasized that the next goal is to calibrate policy so that it is not so restrictive as to stifle growth while remaining a bulwark once morest persistently high prices.
However, he said the “golden path” scenario of lower inflation while promoting strong growth and healthy hiring is closer to what many Fed officials expected.
“Because I am data-driven, I have included unexpected progress on inflation and economic activity in my forecasts, thus raising the expected time for the federal funds rate to begin normalizing to the third quarter of this year instead of the fourth quarter.” Bostic said in prepared remarks to address business leaders in Atlanta.
While these statements help shed light on a timeline for rate cuts, they also serve as a reminder that Fed officials and market participants have different expectations regarding policy easing.
Current prices in the federal funds futures market point to the first cut coming in March, according to CME Group’s FedWatch gauge. The implied probability of a cut has fallen by a quarter of a percentage point in recent days but remains at regarding 57% Thursday morning. The pricing also indicates a total of six cuts this year, or one at each FOMC meeting but one from March onward.
Bostic said he was not ready to cut before the third quarter, which would mean a move in July at the earliest, but he said the bar would be high.
“If we continue to see more negative surprises accumulating in the data, it is possible for me to feel comfortable enough to call for normalization sooner than the third quarter,” he said. “But the evidence must be convincing.”
There are a number of factors that might change the calculations, such as geopolitical conflicts, the ongoing budget battle in Washington and the looming presidential election, to name a few mentioned by Bostic.
Consequently, he called for caution and said his approach would be “grateful and vigilant.”
“In such an unpredictable environment, it would be unwise to take a confirmed approach to monetary policy,” Bostic said. “That is why I believe we should allow events to continue to develop before starting the process of policy normalization.”
Some of the data points Bostic said he will monitor 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 reached their lowest level since September 2022, a sign that the labor market remains tight.
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