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Fed’s Bostic Sees Rate Cut in Third Quarter Followed by a Pause
Federal Reserve Bank of Atlanta President Raphael Bostic said he expects the Fed’s first interest-rate cut, which he has penciled in for the third quarter, will be followed by a pause the following meeting to assess how the policy shift is affecting the economy. Bostic, in a separate commentary published on the Atlanta Fed website Monday, said he was worried that businesses have too much exuberance and could unleash a burst of new demand after a rate cut that adds to price pressures. That could be another reason not to cut rates at a rushed pace, he told reporters in a press briefing. “I would probably not ... (full story)
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post: Fed’s Bostic: No urgency to cut interest rates given US economy’s strength Bostic: Services Inflation Remains Higher, and It May Take Longer for Adjustment to Occur Bostic: Don’t Have a Base Case for When It Might Be Appropriate to Reduce Pace of Balance Sheet Decline post: Bostic: Still Expect Two Quarter-Percentage-Point Cuts This Year Bostic: Need to See More Progress, Gain Confidence, on Disinflation Before Reducing Policy Interest Rate Atlanta Fed’s Bostic: Inflation’s on Track to “Slowly” Return to 2% Target, but Too Early to Claim Victory post: Bostic: Soft Landing “Hardly Assured,” Given Level of Uncertainty Bostic: Inflation Still Widespread, with Prices for More Than the Usual Share of Items Increasing Above 5%, Trimmed Mean “Stuck” at 2.6% Bostic: Fed “Has Some Time” to Be Sure Inflation Returns to Target post: BOSTIC: THIRD-QUARTER CUT LIKELY FOLLOWED BY PAUSEBostic: Three Economic Realities That Make Me Grateful yet Vigilant I often say that being the Atlanta Fed president is the best job I've had. Among the things I love about my job is that it's never dull. I get to talk to people from numerous walks of life all over the Southeast and the country and learn from their interesting perspectives about how the economy is and is not working for them. And tracking the US economy is endlessly fascinating because it's always changing, so there is always something new to learn. The flip side is there's always something to fret over. I often say that I get paid to worry, and, though I usually say it jokingly, there is real truth to that. So, where is my attention, or worry, focused these days? Let me communicate that by relating three messages that encapsulate my monetary policy stance in this moment. But before I get into that, you already know that the Federal Open Market Committee decides on monetary policy, most notably by setting the federal funds rate, which influences various market interest rates including those that lenders assess for auto loans, mortgages, and business loans. You may not know that the roster of voting Committee participants shifts every year. This year, I'm on the roster of voters, which is a distinct privilege. But that reality doesn't change the fact that in this message I speak only for myself and not anyone else on the Committee. Inflation has slowed but risks remain Message one begins with price stability. Inflation decelerated more quickly than even optimists expected over the past year, declining from over 5 percent to 2.6 percent during 2023, as measured by the Fed's preferred yardstick, the Personal Consumption Expenditures (PCE) price index. I believe inflation is on track to slowly return to the Committee's 2 percent objective, alongside a strong labor market and expanding economic activity. That's unusual. Typically, unemployment rises when the Fed tightens monetary policy to subdue outbreaks of inflation like the one we experienced beginning in 2021. So, a return to price stability without deep economic pain would constitute a resounding success by historical standards. Just how different is this episode? Research tells us that when the Fed tightened policy aggressively in previous cycles, the unemployment rate rose by about 1.5 percentage points, on average. That hasn't happened this time, so far at least. When the Committee began raising the federal funds rate in March 2022, unemployment was 3.6 percent. After 11 rate hikes, January's unemployment rate stood at 3.7 percent. The unemployment rate has remained benign as monthly employment growth has held up remarkably well. Revisions from the Bureau of Labor Statistics bumped up the job growth numbers for late 2023, and the original report for January exceeded all expectations. Importantly, data also showed that job creation in January broadened beyond the small number of sectors—notably, health care—that had accounted for an outsize share of growth in the second half of 2023. I don't overreact to one month's data, to be sure. But a job market that had been cooling—effectively slowing to a normal state—has shown fresh signs of strength. The story is similar for economic growth. Econometric evidence suggests that past tightening cycles led to about a half-percentage-point decline in real gross domestic product over two to two-and-a-half years—a recession, basically. Bucking that history, real G
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- Posted: Mar 4, 2024 1:32pm
- Submitted by:Category: Fundamental AnalysisComments: 0 / Views: 2,745