Source: Zhitong Finance

Atlanta Federal Reserve Chairman Bostic said in an interview that although the timing and extent of policy relaxation is uncertain, and the rate of further decline in inflation is slow, the Federal Reserve may still cut interest rates as planned this year.

This is Bostic's first public comment after the Federal Reserve's policy meeting last week. He said that although prices seemed to rise much faster than the Fed's 2% target in the first quarter, “I still believe” interest rates can be lowered this year.

Bostic said that conversations with his company in the southeastern US Federal Reserve region suggest that wage and employment growth may slow down, and most companies believe that their pricing capacity is declining after the rapid rise in prices drove inflation to a 40-year high in 2022.

Bostic said in an interview on Thursday, “Most employers I've talked to expect them to return to pre-pandemic wage growth levels.” With the exception of tech companies, “we've heard almost everyone... their pricing power has almost reached its limit”.

Bostic said that this will lay the foundation for further progress on the inflation issue this year and for the Federal Reserve to finally begin easing monetary policy.

But that might take a while. For example, Bostic pointed out that although US employment growth in April was weaker than expected, 175,000 new jobs are still a strong figure, and a further decline is needed before it can be felt that this is in line with the Federal Reserve's inflation target.

“I don't think we'll see this for at least a few months,” he said. “I hope we can continue to see this slowdown because my expectations do indicate that in order for the inflation rate to return to the 2% target, you have to see some slowdown... we're still seeing strong employment growth.”

According to information, Bostic is a voting member of this year's FOMC. Last week, he supported the decision to keep the benchmark interest rate unchanged in the 5.25%-5.50% range once again.

“Higher for longer”

Bostic said he still believes that interest rates may only be cut by 25 basis points later this year, but his focus now is not on how much policy interest rates may drop by the end of this year, but on determining the right time to cut interest rates.

“We just need to be patient until inflation gives us a signal that it is moving more strongly towards 2%,” he said. “It will take some time. For me, the question is not how much (interest rate cut) this year, but when will the first (rate cut) happen.”

Since this year, Federal Reserve officials and investors have been steadily delaying interest rate cuts. Previously, interest rate cuts were expected to begin as early as March, but now they are not expected to begin until September. The next economic and interest rate outlook update by Federal Reserve officials will be at the June 11-12 meeting.

Bostic said that he currently expects the inflation rate to reach 2% at the end of 2025 or the beginning of 2026, slowly returning to the price stability level defined by the Federal Reserve. He believes this will prevent the Federal Reserve from rapidly rising unemployment. According to information, the personal consumer spending price index, the inflation indicator favored by the Federal Reserve, rose 2.7% year on year in March.

Bostic also pointed out that although employment growth needs to slow down, he still estimates that monthly employment growth in the range of 100,000 to 150,000 people — far lower than the general level during the pandemic — will be in line with the stable unemployment rate in the US.

Finally, Bostic said he is an “optimist” and believes price pressure will ease, even if policy interest rates “need to stay high for a longer period of time, and the process will be very bumpy.”

“When I spoke to business leaders, they all told me they saw growth slowing... We saw the same situation in this area of research,” Bostic said. “But it's clear that the US economy is quite strong, lots of products are continuing to be produced, and lots of jobs are being created... we have to work to reduce the inflation rate to 2%. Ultimately, we will have to do everything we can to achieve this goal.”

Editor/jayden