In a recent speech, Atlanta Fed President Raphael Bostic emphasized the need for caution when considering interest-rate cuts in the near future. Bostic’s revised projection now suggests that any rate reductions should be delayed until the third quarter of the year, rather than the originally anticipated fourth quarter. This shift in timing is attributed to unexpected improvements in both inflation and economic activity.
One significant reason to exercise restraint is the current unpredictability of the economic environment. Bostic cautions against firmly committing to an interest-rate policy too soon, as doing so could potentially lead to a surge in demand and subsequent upward pressure on prices.
Bostic’s speech served as one of the final addresses before the upcoming Federal Reserve policy meeting scheduled for January 30-31. Market experts widely anticipate that the Fed will maintain its benchmark rate within a range of 5.25%-5.5% over the next two weeks.
Fed Rate Cut Outlook Uncertain as Officials Push Back
Since the last Fed meeting in December, there has been growing speculation that the first rate cut of the year would take place in March. However, recent remarks from Atlanta Fed President, Raphael Bostic, have cast doubt on this timing. Bostic is just one of several Fed officials who have pushed back on the notion of rapid rate cuts.
According to the CME FedWatch tool, traders in derivative markets currently see slightly over a 50% chance of a rate cut in March. This uncertainty reflects the division among policymakers regarding the appropriate course of action.
In a recent interview with the Financial Times, Bostic revealed that he has penciled in two rate cuts for this year. While his forecast is lower than the median Fed prediction of three cuts in 2024, the market has priced in even more aggressive easing with six cuts.
Bostic emphasized that his support for earlier rate cuts would require convincing evidence. He stated that he closely monitors the labor market, as any significant slowdown in employment growth could necessitate an adjustment to his interest-rate views. He believes that keeping interest rates too high could pose unnecessary risks to the labor market.
However, Bostic noted that currently very few of his business contacts anticipate layoffs. This supports his cautious outlook and suggests that the labor market remains resilient despite potential economic headwinds.
Earlier on Thursday, the Labor Department reported that claims for initial state unemployment fell to the lowest level in 16 months. This positive data point further underscores the stability of the job market.
While uncertainty looms regarding the timing and extent of rate cuts, it is clear that Fed officials are carefully assessing various indicators before making any decisive moves. The divergence in views reflects the complex and challenging environment they face in supporting economic growth while safeguarding against potential risks.
Market Update: Stocks Show Mixed Performance
In Thursday’s trading session, stocks displayed a mixed performance, with the Dow Jones Industrial Average (DJIA) experiencing a marginal decline. Additionally, there was an increase in the yield on the 10-year Treasury note BX:TMUBMUSD10Y, which rose to 4.12%.