FOMC voting member Bostic warns: The Federal Reserve should not cut interest rates significantly in succession!

Atlanta Fed President Bostic said that starting a rate cut cycle with a significant rate cut would help bring rates closer to a neutral level as the risks between inflation and employment become more balanced.

However, Bostic further stated that officials should not commit to a series of large consecutive rate cuts due to uncertainties surrounding the so-called neutral rate - the rate level at which the Fed neither stimulates nor slows down the economy - and concerns about a potential resurgence of inflation.

In a speech prepared for an event organized by the European Economic and Financial Center on Monday, Bostic said, "My residual concerns about inflation might have inclined me to make a relatively small initial rate cut last week - say 25 basis points. But such a move would mask the increasing uncertainty about the trajectory of the labor market."

Bostic's comments came after Fed officials cut rates by 50 basis points last week, a larger cut than most economists had initially expected. Fed Chairman Powell said the significant rate cut was aimed at strengthening the "strong" labor market. He also stated that this move was a signal that policymakers are "not behind the curve" as the labor market weakens and inflation cools.

In his speech on Monday, Bostic stated that the Fed has made "substantial progress" in containing inflation, while risks on the employment front have increased.

The Atlanta Fed President expressed encouragement at data showing a faster-than-expected decline in inflation. Calculated at 2.5%, the Fed's preferred inflation gauge - the Personal Consumption Expenditures Price Index (PCE) - is close to the central bank's 2% target.

He noted that price increases are slowing down, with the core PCE, which excludes volatile food and energy costs, growing at an annualized rate of 1.7% in the three months ending in July. Bostic added that core service prices excluding housing - a stubborn source of inflationary pressure - are also cooling down.

He mentioned that with rising unemployment, slowing hiring, and job vacancies declining from their peak in 2022, the labor market is weakening. However, he also pointed out that the labor market has not become weak.

Bostic added, "The labor market has not yet raised a red flag for me."

Forecasts released after the two-day meeting last week showed that most officials are inclined to cut rates by another 50 basis points in the remaining two meetings this year.

Earlier this month, Bostic stated that the Fed's two mandates - price stability and full employment - have reached a balance for the first time since 2021, but he is not yet ready to declare victory over inflation