The Federal Reserve may have to wait longer before cutting interest rates because even though inflation fell slightly in April, upward pressure on prices continues, the Fed Chairman said Thursday. Atlanta, Raphael Bostic.
“We are not past the point of concern in terms of inflation returning to our target,” Mr. Bostic said during a virtual class session with students from the business school of Stanford University, noting that the share of goods rising in price faster than 3% or 5% is higher than in a normal environment, even in the latest reading of the Consumer Price Index.
Furthermore, the job market shows few signs of distress, he said. “Job growth has been robust… which tells me there’s still a lot of energy in the economy, and that gives me comfort in staying at a more restrictive level because we let’s not risk today, I don’t think, falling into an environment of contraction,” said Mr. Bostic.
Mr. Bostic is a little more optimistic than some of his Fed colleagues, although higher-than-expected inflation numbers in the first three months of the year have more of his Fed colleagues US central bank to share the same view: they will have to keep the key rate in its current range of 5.25% to 5.5% for longer than they previously thought.
Mr. Bostic said he thinks the Fed may have to delay a rate cut until the last three months of the year, an expectation he justifies in part by hearing from business leaders say they are waiting to deploy capital until borrowing costs become more attractive.
“It could spur a sort of resurgence, if you will, of economic activity that could run counter to what we’re trying to accomplish,” Mr. Bostic said Thursday. “We may need to be a little more patient and more certain that inflation is on track to meet the Fed’s 2% target before cutting interest rates.
Mr. Bostic said he would not consider changing the Fed’s 2% inflation target until the Fed hits that target, but once it does, it might be time to discuss the need for a new benchmark, given structural changes in the economy since the pandemic that could push inflation higher.
The Fed will begin a new review of the framework in 2025 that could include such a topic, Mr. Bostic said.
