Fed Bostic: "First Interest Rate Cut Expected in Q3... Fed Must Be Cautious"

Raphael Bostic, President of the Federal Reserve Bank of Atlanta, stated on the 18th (local time) that the first interest rate cut is likely to occur in the third quarter.

[Image source=Reuters Yonhap News]

At an event hosted by the Atlanta Business Chronicle, President Bostic said, "We need to see more evidence that inflation is on a trajectory to reach the 2% target."

At the event, President Bostic mentioned potential concerns about the U.S. presidential election and geopolitical risks stemming from the Middle East, emphasizing the Federal Reserve's need to proceed with more cautious rate cuts. He also predicted that the Fed would not cut rates before the third quarter. He said, "In my outlook, the first rate cut will occur in the third quarter of this year, but we need to see how the data unfolds going forward," adding that if inflation slows down much faster than expected, the Fed could move sooner.

As the worst-case scenario going forward, he cited the possibility that after the Fed lowers rates, inflation could rebound, forcing the Fed to raise rates again. He said, "We do not want a bumpy situation moving up and down, back and forth," and added, "Before we move too dramatically, we want to be sure that inflation is where we want it to be."

According to the Chicago Mercantile Exchange (CME) FedWatch, the interest rate futures market currently reflects about a 55% chance that the Fed will cut rates by at least 0.25 percentage points at the Federal Open Market Committee (FOMC) meeting in March after holding rates steady in January. This is a decline from the 70% range a week ago. The retreat in early rate cut expectations is analyzed to be due to recent hawkish voices from Fed officials including Christopher Waller, Wall Street heavyweights, and economic scholars.

Earlier released December retail sales showed stronger-than-expected levels, dampening market expectations for an early rate cut. The weekly initial jobless claims announced on the same day also fell to their lowest level since September 2022, confirming a still robust labor market. However, the Fed Beige Book released the previous day included content indicating signs of cooling in the overheated labor market that had been fueling inflation.

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