Atlanta Fed President Raphael Bostic said the rate-cutting cycle that began with a sizeable cut would help move rates closer to a neutral level as the risks between inflation and employment become more balanced.

But Bostic went further and said officials should not commit to large, consecutive rate cuts because of uncertainty about the so-called neutral rate - the level at which the Fed neither stimulates nor slows the economy - and concerns about a possible resurgence of inflation.

“My residual concerns about inflation might have inclined me to make a relatively small first cut last week — say, 25 basis points,” Bostic said in prepared remarks at an event organized by the European Centre for Economics and Finance on Monday. “But such a move would have masked growing uncertainty about the trajectory of the labor market.”

Bostic's comments came after Fed officials cut interest rates by 50 basis points last week, a bigger cut than most economists had initially expected. Fed Chairman Jerome Powell said the big rate cut was intended to strengthen a labor market that was "in good shape." He also said the move was a signal that policymakers were "not getting behind the curve" because of a weak labor market and cooling inflation.

In a speech on Monday, Bostic said the Fed had made "substantial progress" in taming inflation, while risks to employment had increased.

The Atlanta Fed president said he was encouraged by data showing inflation was falling faster than expected. At 2.5%, the Fed’s preferred inflation measure, the personal consumption expenditures price index (PCE), was close to the central bank’s 2% target.

He said price increases were slowing, with core PCE, which excludes volatile food and energy costs, increasing at an annualized rate of 1.7 percent in the three months through July. Core service prices excluding housing — a stubborn source of inflationary pressures — were also cooling, Bostic added.

He said the labor market is softening as unemployment rises, hiring slows and job openings fall from a peak in 2022. But he also noted that the labor market is not becoming weak.

Bostic added: “The labor market is not flashing red lights to me yet.”

Forecasts released after last week’s two-day meeting showed most officials favored another 50 basis point rate cut in the two remaining meetings this year.

Bostic said earlier this month that the Fed's two mandates - price stability and maximum employment - were balanced for the first time since 2021, but he was not ready to declare victory over inflation.

Article forwarded from: Jinshi Data