FOMC voting members this year: The labor market is not weak, it is very dangerous to relax policy too early
Atlanta Fed President Bostic stated that the current labor market is stable but not weak, emphasizing the danger of premature easing of monetary policy leading to a resurgence of inflation. He mentioned that the Fed has achieved a balance in its goals, but inflation risks still exist, requiring caution. He remains cautious about whether to continue cutting interest rates at the upcoming FOMC meeting in September, noting that the economy and labor market are losing momentum
Atlanta Fed President Bostic said that the Fed's two goals - stable prices and full employment - have achieved a balance for the first time since 2021, but he added that he is "not ready yet" to declare victory over inflation.
Bostic stated in a paper released by the Atlanta Fed on Wednesday, "Although inflation has fallen significantly, the risks to achieving our price stability target still exist. We must remain vigilant to ensure that these risks continue to dissipate."
"History tells us that prematurely easing monetary policy is a dangerous strategy that can lead to a resurgence of inflation and sustain it in the economy for months or even years," he said.
Bostic, who is one of the FOMC voters this year, did not explicitly indicate whether he would support a 25 basis point rate cut at the next Fed meeting on September 17-18.
The Atlanta Fed President mentioned that, if the Fed waits until inflation falls back to 2% before easing policy, there are also risks in the labor market.
After studying labor market data and anecdotal information, Bostic stated that he sees the job market "loosening but still stable overall." "The labor market remains soft but not weak," he said.
The pressure that companies are exerting to attract workers has decreased, which has also restrained wage growth and reduced the urge for businesses, especially service sector businesses, to raise prices to cover labor costs. He noted that more broadly, it seems that businesses' pricing power is declining.
"Rest assured, I do not sense an imminent collapse or panic among business contacts," Bostic said. "However, data and our grassroots feedback indicate that the economy and labor market are losing momentum."
Bostic has repeatedly warned of the risk of reigniting inflation if the Fed cuts rates prematurely. In a speech last week, Bostic stated that cooling price pressures have accelerated his timetable for rate cuts, but inflation is still "far" below the Fed's 2% target.