Raphael Bostic, president and CEO of the Federal Reserve Bank of Atlanta, and a voting member of the Federal Open Market Committee, is open to cutting interest rates sooner than he previously thought — if the conditions are right, he told The Atlanta Journal-Constitution.
But he continues to watch the data on inflation, which will be the deciding factor.
And though Bostic said he does not foresee a recession, if it were to take a small one to reach the Fed’s target of 2% inflation, so be it.
Since the pandemic, those three things — inflation, interest rates and a potential recession — have weighed heavily on Americans’ minds and pocketbooks.
The Federal Reserve, the U.S. central bank that decides the country’s monetary policy, raised interest rates 11 times from 2022 to 2023 to try to cool rapidly increasing prices of goods and services. Since then, the Fed has kept rates steady while inflation has slowly decreased, but the higher rates have caused pain in other ways for Americans who wonder when they will drop again.
In June, Bostic wrote in a public essay, “I continue to believe conditions will likely call for a cut in the federal funds rate in the fourth quarter of this year.”
On Tuesday afternoon, in an interview with the AJC, Bostic said, “If the inflation numbers come in more positive than I expect, then I’m willing to pull forward that fourth quarter cut” to the third quarter.
But if inflation data comes in more negative than expected, he is willing to push back the rate cut, Bostic said.
Over the 12 months ending in July, consumer inflation was at 2.9%, a report issued Wednesday showed. Though that’s still above the Fed’s 2% target rate of price growth, it was the lowest level in more than three years.
On Tuesday, the latest figures from producer price index showed wholesale inflation eased in July, another promising sign that inflation is slowing down.
The FOMC will vote on whether to cut rates at its next meeting in September and analysts are widely expecting the committee to make that move.
Recession fears
The Federal Reserve and its 12 district banks, including Atlanta, are vital parts of the U.S. economy. Leaders of the Fed are nonpartisan, though confirmed by the U.S. Senate. Their mandate is to manage employment and pricing independent from political interference.
But management of the economy will be on the minds of voters ahead of the November elections.
On Tuesday, Bostic spoke at the Conference of African American Financial Professionals in Atlanta and explained the inflation the country is experiencing now was because of the pandemic’s impacts on the economy.
When the U.S. first went into lockdown, the federal government instituted programs to keep people and businesses financially stable. And though some people initially lost their jobs, people got back to work relatively quickly and were earning money they couldn’t spend because of the lockdowns and other efforts to slow the spread of COVID-19.
Once businesses reopened and travel resumed, Americans flush with cash started to spend and demand went up, but supply couldn’t keep up. Bostic said this supply-demand imbalance made prices increase, which caused inflation. The Fed is trying to get the country back to a place where supply and demand are about the same.
Historically, when interest rates go up, so does unemployment. But for a while an unusual thing was happening in the economy — despite rate hikes, hiring was still strong.
“This has been one of the most unusual economic periods in my lifetime. I’ve never really seen anything like this,” Bostic told the audience.
But earlier this month, the Labor Department reported weaker-than-expected jobs numbers and unemployment in the U.S. rose for the fourth straight month to 4.3%, the highest it’s been since October 2021. Bostic noted, however, it is still historically low.
But the weak jobs report and the Fed’s decision to hold rates steady in July caused the stock market to fall drastically at the beginning of August before rebounding.
When asked if the Fed would be willing to go through a small recession if it meant reaching the 2% target, Bostic said the Fed’s price stability goal is what is most important.
“A recession is not in my outlook today, but if we saw weakening that was necessary,” he told the AJC, “getting inflation to target is priority number one and has been for a long time.”
But even though the economy has not fallen into a recession yet, the Fed’s rate decisions have made getting loans to buy a house, a vehicle or support a business more difficult.
Last December, Federal Reserve Chairman Jerome Powell and Board of Governors member Lisa Cook listened to insights from local professors and key players in Atlanta’s tech and innovation ecosystem on how monetary policy is negatively impacting Black founders.
Ultimately, the Fed doesn’t want to cut rates, then have inflation increase and have to raise rates again in response, Bostic told the financial professionals at Tuesday’s conference.
It’s a perspective that George Nichols, president and CEO of the American College of Financial Services, can understand.
“I thought and had hoped that there would be a rate cut earlier,” Nichols said. But, he added, “why lower rates” if you don’t have all the data, “because you sure don’t want to raise them.”
And while higher interest rates have boosted the returns on some people’s savings or investment accounts, Maddie Brooks, a New Jersey-based regional director for Prudential Advisors, said she hopes the Fed is keeping in mind people who aren’t benefiting from the hikes.
“It’s hard for someone who might be buying a car for the first time and right out of college,” she said. “I think the Fed should be very mindful of both sides of the coin and try to meet somewhere in the middle, so that everybody is happy.”
Inflation weighs on minds as much as on bank accounts. People remember when prices were lower and that is what can make the increases so hard to stomach.
But if the Fed’s 2% target is reached, don’t expect costs to go back to pre-pandemic levels. The Fed isn’t making decisions that it hopes will lower prices but will instead slow down how fast they are going up, Bostic said. Eventually, people will get used to the prices that feel high now.
He knows what consumers are feeling because he feels it, too.
“I go to the grocery store like everybody else. I go to the gas station like everyone else. I face all the same things that everybody else does,” he said.
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