Atlanta Fed President Rafael Bostic expressed concern Wednesday about the pace of inflation and indicated he does not believe interest rate cuts should occur until later in the year.
In an interview with CNBC, the central bank official said that strong productivity, a rebounding supply chain and a resilient labor market suggest that inflation will fall “much more slowly than many expected.”
“If the economy develops as I expect, and that will see continued strength in GDP and unemployment and a slow decline in inflation over the course of the year, I think it will be appropriate for us to eventually start moving lower.” “This year, the fourth quarter,” he said on “Squawk Box.” “We just have to see where the data comes from.”
Bostic's comments come as other Fed officials also signal a desire to move cautiously on interest rate cuts. They noted that the strong economy as well as moderate inflation give them time to see more evidence that inflation is returning to the central bank's 2% target.
However, the balance of the Federal Open Market Committee, of which Bostic is a voting member, indicated last month that they expect three cuts to come this year, assuming quarter-point increases.
This makes Bostic one of the most hawkish members of the interest rate-setting body. Markets expect the Fed to start cutting interest rates in June or July. The probability changed on Wednesday morning, with the market's implied probability of a June cut falling to 54%, down about 10 percentage points from the previous day, according to CME Group's FedWatch gauge.
During an interview on Wednesday, Bostic noted that his views on inflation and interest rates have swung back and forth as he watched the data evolve from positive progress in inflation in the latter part of 2023 to a less certain level this year.
“It's going to be a bumpy road, and I think if you look over the last few months, inflation hasn't moved much compared to where we were at the end of 2023,” he said. “There are some secondary measures in the inflation numbers that have me feeling a little concerned that things might move slower.”
He said there are some commodity components in the inflation measures used by the Fed that show a high percentage moving above 3% and some above 5%.
“These rates are much higher now than they were before and are starting to return to what we saw in the period of high inflation,” Bostic added. “They are moving away from what we would like to see. So I have to make sure those don't hide some additional upside pressures and pricing pressures before I want to move the interest rate.”
Most metrics tracked by the Atlanta Fed show inflation exceeding 3%. Its own measure of “flat” inflation showed the 12-month rate at 4.4% in February. In fact, the only measures in the Atlanta Fed's Core Inflation Dashboard that are below 3% are the personal consumption expenditures price indexes that the central bank uses as its primary measure.
