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Atlanta Fed President Raphael Bostic Signals Shift in Monetary Policy
In a significant departure from his previous stance, Atlanta Federal Reserve President Raphael Bostic has indicated his readiness to lower interest rates despite inflation remaining above the Fed's target of 2%. This shift in perspective is driven by emerging signs of a weakening labor market, which Bostic believes warrants a more nuanced approach to monetary policy.
Bostic's statement, published on the Atlanta Fed's website, emphasizes the need to balance the dual mandates of the Federal Reserve: price stability and maximum employment. He notes that waiting for inflation to reach 2% before reducing rates could lead to unnecessary pain and suffering in the labor market. This stance is particularly noteworthy given Bostic's previous reputation as a hawkish member advocating for stringent policies to combat inflation.
The current inflation landscape, with the Fed's preferred gauge at 2.5% in July and a core rate of 2.6% excluding food and energy costs, underscores the complexity of the situation. While Bostic did not specify the timing or extent of potential rate cuts, his comments have significant implications for the Federal Open Market Committee's (FOMC) upcoming meeting on September 17-18. Markets are already anticipating a quarter-point reduction in benchmark borrowing rates, and Bostic's influence as a voting member of the FOMC lends credibility to this expectation.
Bostic's remarks also precede the highly anticipated nonfarm payrolls report, which many economists predict will show a slowdown in the labor market. His discussions with business leaders in the Atlanta region reflect this apprehension, with a focus on the grassroots feedback indicating a loss of labor market momentum. However, he also highlights the upside of this slowdown in terms of its potential to feed into a welcome reduction in inflation.
The Atlanta Fed President's shift in focus towards the employment aspect of the Fed's dual mandate is a significant development, particularly given the steady movement of inflation towards the target rate as the labor market cools. This nuanced approach acknowledges the interplay between pricing dynamics and labor market conditions, marking a significant shift in Bostic's stance since early 2021.
Original Article: https://www.cnbc.com/2024/09/04/atlanta-fed-president-bostic-says-officials-cant-wait-for-inflation-to-hit-2percent-before-cutting.html
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