America, we need to chill out.
Raphael W. Bostic, president and chief executive officer of the Federal Reserve Bank of Atlanta, wants us all to be patient when it comes to possible interest rate cuts in 2025.
There’s just a tad too many unknowns in the U.S. economy right now, including inflation numbers plus trade wars and tariffs, he said in a June 3 essay.
Fed faces delicate balance of prices, jobs
The Federal Reserve’s dual mandate targets low inflation and unemployment. These goals are often at odds because higher interest rates lower inflation but increase job losses, while lower interest rates lower unemployment but increase inflation.
Post-pandemic, many express the same concern: interest rates on small business loans, consumer credit cards, and home mortgages are too high.
Jerome Powell, chairman of the US Federal Reserve, has paused interest rate cuts in 2025 while he awaits more insight into inflation and unemployment.
Unfortunately, market participants remain downbeat about interest rate cut chances despite President Trump’s multiple escalating demands directed at Federal Reserve Chairman Jerome Powell.
The May jobs data from the Labor Department were slightly higher than expected but down from April. Unemployment is 4.2%, historically low, but up from 3.4% in 2023.
Related: Billionaire fund manager sends strong message on Fed Chair Powell’s future
Absent a big uptick in unemployment, Fed watchers’ attention is firmly on inflation. The Fed’s unofficial goal is core inflation (inflation minus volatile energy and food prices) of 2%. PCE inflation is the Fed’s favored measure. In April, core PCE was 2.5%.
Bostic’s comments echo caution on interest rates
Inflation remains somewhat above the Federal Open Market Committee’s (FOMC) target, and the labor market shows signs of slowing but is still broadly stable, Bostic said in his essay.
“As of April, we had not yet seen clear signs of tariffs boosting inflation, though research by economists, including ours here at the Atlanta Fed, suggests we might see upward pressure on prices over the coming weeks,” he wrote.
Related: Looming inflation data may rock interest rate cut forecasts
In a conference call with reporters, Bostic said it’s “a tough call” whether the Fed would be cutting rates right now if all the trade uncertainty were out of the picture. He added that he’s “very cautious about jumping to cuts at this point.”
In May, Bostic told reporters he was modeling for just one single interest rate cut this year.
Bostic pointed to unsettled trade policy and Trump’s tariffs as adding to economic gloom in April and May. And the congressional action on the Trump’s “One Big, Beautiful Bill” has an unknown impact on future regulatory and fiscal policy.
“There is a great deal of uncertainty out there, making it quite difficult to forecast the economy with confidence. Given that, I continue to believe the best approach for monetary policy is patience,” Bostic wrote.
“As the economy remains broadly healthy, we have space to wait and see how the heightened uncertainty affects employment and prices. So, I am in no hurry to adjust our policy stance,” he concluded.
The May CPI numbers will be released at 8:30 a.m. on June 11. TheStreet Pro’s Chris Versace says the rate may be higher than expected despite lower gas prices.
“We also have to wonder if Bostic’s comment helps lay the groundwork for the Fed’s upcoming set of economic projections that it will publish alongside its next policy decision on June 18,” Versace said.
Related: Veteran fund manager revamps stock market forecast
