Atlanta Fed President Says "Interest Rates Will Remain Until Summer"

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Amid widespread expectations that the U.S. Federal Reserve (Fed) will begin cutting interest rates as early as March, Raphael Bostic, President of the Federal Reserve Bank of Atlanta, stated that he expects rate cuts to start around the third quarter.

In an interview with major foreign media on the 14th (local time), President Bostic said, "If interest rates are cut too quickly, inflation could rise again."

Raphael Bostic, President of the Federal Reserve Bank of Atlanta, USA
[Image source=Reuters Yonhap News]

U.S. inflation surged to its highest level in decades around the summer of 2022, then fell rapidly in the second half of last year. President Bostic said, "The pace of inflation decline will slow significantly going forward," adding, "There is a risk that inflation could stagnate." While acknowledging that inflation fell faster than expected last year, he projected that inflation would drop to 2.5% by the end of this year and only reach the Fed's target of 2% by 2025.

President Bostic said, "Current interest rates need to be maintained until after the summer," emphasizing that "a cautious approach is necessary due to the uncertainties facing the U.S. economy." The market expects the Fed to start cutting rates as early as March. However, contrary to these expectations, rate cuts may only begin in the third quarter. Additionally, investors anticipate the Fed will cut rates six times this year.

On the other hand, President Bostic predicted that the Fed would cut rates only twice this year. He stated, "Inflation must clearly move toward the 2% target," and warned, "If the Fed starts cutting rates and inflation begins to fluctuate, it will lead to negative outcomes. Market confidence in the direction of the economy could weaken." He added, "The Fed's outlook on rate cuts is very clear, but the market seems to believe inflation will fall faster."

President Bostic holds the view that the Fed should not shift its policy focus from controlling inflation to job creation, as the unemployment rate (3.7%) is sufficiently low. He also noted, "There are signs of weakness in parts of the manufacturing sector."

President Bostic recently pointed out that escalating geopolitical tensions in the Middle East, particularly in the Red Sea, could impact inflation. The Iran-aligned Yemeni Houthi rebels have controlled the Red Sea shipping lanes and attacked civilian vessels since November last year. As a result, most shipping companies have chosen to bypass the Red Sea route by taking the longer path around the Cape of Good Hope in Africa. According to a Geneta survey, the cost of transporting a 40-foot container from the Far East to Europe has surged about 150% over the past month, causing shipping rates to skyrocket. President Bostic said, "We need to closely monitor the sharp rise in transportation costs," adding, "Middle East conflicts and attacks on container ships could be reflected in corporate costs."

This content was produced with the assistance of AI translation services.