FED’s Bostic Signals Willingness for Additional 50bps Interest Rate Cut in November

Raphael Bostic, President of the Atlanta Federal Reserve, mentioned on Monday that he is open to another half-percentage-point interest rate reduction during the Fed’s November meeting if upcoming data indicate that job growth is slowing faster than anticipated. In an interview with Reuters, Bostic said, “A weaker-than-expected result could push me to support a more significant move.”

His main outlook is for a steady decrease in interest rates over the next 15 months, potentially ending with the central bank’s rate between 3.00% and 3.25% by the end of 2025. This range, Bostic believes, would have a neutral impact on the economy, 1.75 percentage points lower than the rate set in September.

At the Fed’s latest policy meeting, Bostic predicted just one additional quarter-percentage-point rate cut for the year, following the half-point cut that was approved earlier. However, he is open to adjusting this view, depending on how inflation and labor market data evolve, particularly the jobs report expected on Friday for September.

Last week’s data showed that inflation, measured by the Fed’s preferred personal consumption expenditures (PCE) index, eased to 2.2% in August, close to the 2% target. Bostic noted, “The key takeaway is that inflation risks are continuing to drop.” He added that if inflation continues to decline and the labor market remains strong, the Fed can afford to take a more measured approach to future rate cuts. However, a notably weaker labor market could prompt quicker action.

Bostic cautioned against becoming too confident about the inflation outlook, pointing to the core PCE index, which excludes food and energy costs, still at 2.7%. “It’s positive that we remain cautious until further data confirm a drop in inflation,” he said.

His evolving stance this year reflects the challenge the Fed faces in managing interest rates amid uncertain economic conditions. Earlier in the year, Bostic had anticipated no need for rate cuts until late in the year. However, faster-than-expected inflation easing led him to support the significant cut in September, with more likely to follow.

Regarding the job market, Bostic emphasized that his focus is on whether the economy continues to create jobs, particularly at or above the critical threshold of 100,000 jobs per month. This key job growth level is necessary to accommodate new entrants to the labor force. If job growth dips below this figure, Bostic said the Fed would need to examine the broader implications.

Business contacts in Bostic’s southeastern district report no plans for layoffs, which reassures him that the labor market, while slowing, remains resilient. If this trend holds, the Fed can move toward a more neutral interest rate in a gradual manner that ensures inflation returns to target without causing significant labor market disruptions. The pace of future adjustments will depend on incoming data.

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