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Key Takeaways
- Atlanta Federal Reserve Bank President Raphael Bostic said the Federal Reserve needs to “balance” its focus between the labor market and inflation, setting up the case for the central bank to cut interest rates at its next meeting.
- Bostic wrote in an essay that inflation is cooling while the labor market is losing momentum.
- While Bostic didn’t say how he would vote at the September meeting, he noted that rates can’t stay this high for “too long” without damaging the labor market.
The U.S. economy is showing signs of losing momentum, and interest rates may be set too high, one Federal Reserve official wrote Wednesday.
In an essay released online, Atlanta Federal Reserve Bank President Raphael Bostic said his focus on the economy was now “balanced” between the labor market and inflation for the first time since 2021. Bostic cautioned that the Fed couldn’t continue to hold interest rates at their current level for “too long.”
“I do not sense a looming crash or panic among business contacts. However, the data and our grassroots feedback describe an economy and labor market losing momentum,” Bostic wrote.
Federal Reserve Can’t Wait For Inflation To Reach Goal
Bostic’s remarks echo those of Federal Reserve Chair Jerome Powell when he spoke at Jackson Hole last month. They also come ahead of the Sept. 17-18 Federal Open Market Committee (FOMC) meeting, at which central bankers will consider lowering their influential benchmark rate for the first time in four years.
While Bostic’s comments didn’t specifically say how he would vote in that meeting, turning focus to the labor market could make the case for cutting the influential federal funds rates from their current 23-year high of 5.25% – 5.5%.
Bostic’s essay described a labor market that was slowing but still healthy. Meanwhile, inflation is falling, but Bostic urged his fellow central bankers to “stay vigilant” to ensure that price increases continued to slow down.
The closely followed Personal Consumption Expenditures (PCE) index showed that inflation came in at 2.5% in July, still above the Fed’s target of 2% but continuing the downward trend seen over the past few months.
“I believe we cannot wait until inflation has actually fallen all the way to 2 percent to begin removing restriction because that would risk labor market disruptions that could inflict unnecessary pain and suffering,” Bostic wrote.