In 2024, FOMC voting member of the usa Federal Reserve and President of the Atlanta Federal Reserve, Bostic, recently stated that if the usa labor market is weak, and the upcoming data shows that job growth is slowing faster than expected, he will maintain an open attitude towards the FOMC reducing interest rates by 50 basis points again. "Unexpected weakness will further prompt me to believe that it is really necessary to take another aggressive action."

Bostic revealed that in the September dot plot this year, he predicted only one 25 basis point rate cut in addition to the 50 basis point rate cut in September. However, he stated that his thinking is open, depending on the speed at which usa inflation slows from now on, and more importantly - the description of the labor market conditions in the upcoming employment report to be released this Friday.

Earlier this year, Bostic stated that he expected there would not be a reason to cut rates until later this year, but he supported the significant rate cut in September and expects further cuts this year. Analysis points out that Bostic's latest remarks and his continuously changing views this year highlight the usa Federal Reserve's balanced position, with officials becoming increasingly concerned about how quickly the usa labor market may weaken.

Bostic stated that his baseline forecast is that the usa Federal Reserve will gradually ease monetary policy over the next 15 months, and by the end of 2025, the usa Federal Reserve's policy rate will be maintained at a level of 3%-3.25%, which he believes will have a neutral impact on the usa economy. Bostic's projected range for this rate is 175 basis points lower than the rate set at the usa Federal Reserve meeting on September 17-18.

Regarding the PCE data, the usa Federal Reserve's most favored inflation gauge published last Friday, Bostic stated that for him, the greatest achievement was seeing the inflation risks continuing to decline:

If inflation continues to decline, and the labor market remains strong, I think we can be a bit more patient with rate cuts. On the other hand, if the labor market performs very weakly, I believe this will increase the urgency for rate cuts.

Bostic stated that he does not want to fall into a sense of overconfidence, thinking that the path of inflation is short. He pointed out that the PCE price index, which excludes food and energy costs, the so-called core inflation indicator, was still at 2.7% last month. "It is useful and positive to maintain a restrictive stance until more data show inflation is declining."

Bostic said he believes that the recent inflation data, on a month-on-month basis, is below the Federal Reserve's target of 2%, which is positive. He does not think these data are too low to be dangerous, nor does he see it as a sign of monetary policy being excessively tight for a long time.

On the labor market front, Bostic stated that he will focus on whether the US economy is still creating net job positions, especially if monthly job growth remains at around 0.1 million or higher. He believes this level is needed to absorb new entrants to the labor market. 'If job growth falls below this level, we will raise another level of concern - does this point to more fundamental issues?'

Bostic revealed that the business contacts in his Federal Reserve district have indicated that they do not expect layoffs. 'This indeed tells me that although the labor market is slowing down, it is not stagnating. If this situation continues, the path to a more neutral interest rate will be orderly to ensure inflation returns to target levels and minimize disruptions in the labor market. Monthly data will tell us to what extent we are achieving this target, which will guide my assessment of how swiftly we need to take action.'

Following Bostic's mention of the possibility of another 50 basis point rate cut by the FOMC, there was a significant uptick in bid activity for SOFR futures. Just one minute after Bostic's speech, trading volume surged, with most trades coming from the March 2025 contracts, including 9,373 contracts at a price of 96.550 and 10,627 contracts at a price of 96.555. The total trading volume within a minute was approximately 0.02 million contracts, the highest volume to date.

However, short-term US bond markets were minimally impacted, with the 2-year US bond yield declining by about 1 basis point from 3.605% to 3.595%.

Editor/ping