Fed "hawkish" voter turns "dovish": Action must be taken as soon as possible!

In 2024, FOMC voter and Atlanta Fed President Bostic stated that with the easing of price pressures, officials also need to consider their mandate to maintain full employment.

Bostic said, "Now that inflation is returning to normal levels, we must focus on the other side of the mandate, which is that we have seen a significant rise in the unemployment rate from its lows. But this makes me consider the appropriate timing, so I am open to taking action before the fourth quarter."

Bostic acknowledged the high risks the Fed faces in weighing when and how quickly to ease monetary policy.

He said, "Waiting does indeed bring risks, which is why we need to be doubly vigilant. Because our policies have a lag, we really can't afford to move too slowly. We must act early."

Bostic's remarks will further strengthen the market's expectation that the Fed will begin cutting rates in September.

Traders in the federal funds futures market expect the Fed to cut rates by a full 100 basis points by the end of 2024, meaning that at least one of the remaining three meetings this year will require a 50 basis point cut.

The next Fed meeting will be held in mid-January, six weeks before the November presidential election, followed by another meeting shortly after the election, and then the final meeting in December.

Lowering borrowing costs before the election would be welcomed by the Biden administration but could be politically contentious. Republican candidate Trump warned the Fed last month not to cut rates.

Bostic previously supported cutting rates later this year, warning that the Fed must have "absolute certainty" in controlling inflation before lowering borrowing costs.

Bostic's shift in stance came after the July CPI report was released, showing that the year-on-year CPI growth rate fell below 3% for the first time since March 2021.

Bostic said, "We have long said that we need to see data to strengthen our confidence in the sustainable return to a 2% inflation path. I must say, the data over the past few months have strengthened my confidence in this path."

The CPI report released on Wednesday was a "very, very positive signal."

To curb inflation, the Fed has kept rates at a high of 5.25% to 5.5% for over a year, the highest level in 23 years. While the labor market remains strong, there are signs that its resilience is weakening.

Monthly job growth slowed further in July, with the unemployment rate rising for the fourth consecutive month to 4.3%, intensifying concerns about the world's largest economy slipping into a recession.

Bostic said on Wednesday that the labor market "is weakening but not soft," and that he found businesses in the southern U.S. pausing hiring rather than laying off workers.

When asked if the Fed should consider cutting rates by 50 basis points instead of just 25 if the labor market deteriorates faster than expected, Bostic said, "Anything is possible." He said, "If we see changes indicating that the labor market may collapse, I would strongly support more decisive actions to reduce the extent of this pain." However, he stated that this is not his expectation