Bullish! The Federal Reserve Could Introduce Another Rate Cut If This Happens
The United States' federal reserve reveal it is open to another rate cut and would discuss it in it November meeting
The Federal Reserve was willing to consider a more aggressive interest rate cut at the November meeting, contingent upon forthcoming economic data indicating a more pronounced slowdown in job growth than anticipated.
In an interview, Bostic stated, “A surprise to the weak side…. would pull me much further into really needing another dramatic move.”
Moreover, his current outlook anticipates the Federal Reserve’s gradual easing of monetary policy over the next fifteen months, culminating in a target policy rate range of 3.00% to 3.25% by the end of 2025.
Additionally, the projected rate, which Bostic believes would have a neutral effect on the economy, would be 1.75 percentage points lower than the rate established at the Federal Reserve’s September meeting.
During the September meeting, Bostic had initially favored a single quarter-percentage-point rate cut for the remainder of 2024, in addition to the half-percentage-point reduction already implemented.
However, he emphasized that his stance remains flexible and contingent on the trajectory of inflation and, crucially, the labor market’s performance as reflected in upcoming employment reports, starting with the September U.S. employment report due on Friday.
Recent data, specifically the August reading of the Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge, indicated a slowdown in headline inflation to 2.2%, nearing the central bank’s 2% target. Bostic interpreted this as a positive sign: “The big takeaway for me was that the risks of inflation are continuing to fall.”
Federal Reserve 2% Positive target
Bostic’s evolving perspective throughout the year underscores the delicate balancing act currently confronting the Federal Reserve. Concerns regarding the potential for a rapid softening of the U.S. job market are mounting.
Earlier in the year, Bostic had not foreseen the need for rate cuts until late 2024. However, the faster-than-anticipated inflation easing prompted him to support the significant September rate cut, expecting further reductions.
He views the recent month-to-month inflation readings, which have consistently fallen below the Federal Reserve’s 2% target, as “a positive,” dismissing concerns that they signal “dangerously low” inflation or an overly restrictive monetary policy.
Regarding the job market, Bostic indicated that he will closely monitor whether the economy is “still producing net jobs,” focusing on whether monthly job growth remains at or above 100,000 positions, which he deems necessary to accommodate new entrants into the labor force.
