Fed’s Bostic‎ warns: US progress on inflation is likely to slow

A senior Federal Reserve official said inflation could “swing” if policymakers cut interest rates too early, warning that the decline toward the central bank’s 2% target is likely to slow in the coming months. .

After rising to its highest level in decades during the summer of 2022, US inflation fell sharply during the second half of last year, paving the way for interest rate setters to consider lowering borrowing costs from their highest level in 23 years at 5.25 to 5.5%

However, Federal Reserve Bank of Atlanta President Raphael Bostic, who will vote on FOMC decisions this year, said he “expects to see much slower progress in inflation moving forward,” as reported by CNBC.

He added: There are “some risks that inflation may stop completely,” according to what the British newspaper FT reported.

Bostic’s comments came before the December CPI reading, which showed headline inflation rising to 3.4% from 3.1% in November.

While the head of the Atlanta Fed acknowledged that price pressures fell faster than he expected last year, he still believes inflation is likely to reach about 2.5% by the end of 2024 and will not reach the Fed’s target until Year 2025.

Bostic said after the Fed policy vote in December that he believes interest rates will need to remain unchanged beyond the summer.

He explained that the uncertainty facing the American economy calls for such a cautious approach

Bostic added: “Inflation must return strongly and steadily to our target of 2%. It will be a bad result if we begin to ease and inflation begins to rise up and down like a seesaw. This would undermine people’s confidence in the direction the economy is headed.” “

While interest rate setters are increasingly confident that price pressures will return to pre-pandemic levels, most FOMC members want to take their time shifting from their current monetary policy stance.

Investors are more impulsive, with the market pricing in six-fold discounts this year, starting in March. This compares to interest rate setters’ expectations of three cuts, while Bostic sees only two.

He continued: “The markets hear what we are saying – our expectations for lowering interest rates were very clear… but I feel that they believe that inflation will fall faster than I do.”

The head of the Federal Reserve Bank of Atlanta warned that the recent rise in shipping costs against the backdrop of traffic disruption in the Suez Canal due to the Houthis targeting ships should be monitored “closely.”

The cost of shipping a 40-foot container from the Far East to Europe has risen by nearly 150 percent over the past month, according to data from logistics research firm Zenita.

He stressed, “It will be very interesting to see the extent to which the conflict in the Middle East and attacks on container ships begin to appear in the cost structure of companies.”

Bostic believes that with the unemployment rate at just 3.7%, the labor market remains too strong for the Fed to shift its focus from inflation to job creation.