Exclusive: Fed’s Bostic Open to Another Large Rate Cut if Job Market Weakens, Reports Reuters

By Howard Schneider

NASHVILLE, Tennessee – Atlanta Federal Reserve President Raphael Bostic indicated on Monday that he is open to the possibility of a half-percentage-point interest rate cut during the U.S. central bank’s upcoming meeting in November, should forthcoming data reveal a faster-than-expected slowdown in job growth.

"A surprising decline… would require me to consider a more dramatic move," Bostic remarked in an interview.

He outlined his basic perspective as an expectation of "orderly" easing by the Fed over the next 15 months, aiming for a policy rate between 3.00%-3.25% by the end of 2025. This target would mark a neutral impact on the economy and would be significantly lower than the rate established by the Fed in its recent meeting.

Earlier this month, Bostic anticipated only one more quarter-percentage-point rate cut this year, in addition to the previously approved half-percentage-point reduction. However, he remains open to adjustments based on the inflation trajectory and the health of the labor market, particularly in light of the upcoming U.S. employment report for September.

Recent data indicated that headline inflation, measured by the preferred personal consumption expenditures price index, decreased to 2.2% in August, close to the Fed’s 2% target. Bostic noted, "The significant takeaway for me was the continuing decline in inflation risks."

He stated, "If the narrative suggests inflation is dropping while the labor market remains robust, we can afford to be more patient with our rate cuts." Bostic, who has a vote on Fed policy this year, emphasized the importance of monitoring labor market conditions. "Conversely, if we see significant weakness in the labor market, that would create a sense of urgency."

Bostic advised caution against overestimating the speed of inflation reduction and pointed to the core inflation measure, excluding food and energy, which was at 2.7% in the previous month. "Maintaining a restrictive posture is beneficial until we have more evidence of declining inflation," he stated.

BALANCING ACT

Bostic’s comments reflect the ongoing balancing act at the Fed amid rising concerns about a potential slowdown in the U.S. job market. Earlier in the year, he did not foresee the need for rate cuts until late this year; however, he supported the substantial cut in September following unexpected inflation easing.

He viewed the recent lower-than-2% month-to-month inflation readings as a positive sign, not indicative of dangerously low levels or overly tight monetary policy.

Regarding employment, Bostic plans to assess whether the economy continues to generate net job growth, particularly focusing on sustained monthly job growth around 100,000 positions or more, which he believes is essential to accommodate new labor market entrants.

Should job growth dip below this level, "we’ll need to examine further questions to determine if it hints at more fundamental issues," he commented.

Business leaders in Bostic’s southeastern Fed district have expressed a lack of layoff expectations, suggesting that while labor markets are decelerating, they are not stagnant. He anticipates that if this trend persists, the transition to a more neutral interest rate will occur in due course, balancing the return of inflation to target levels while minimizing labor market disruptions. The incoming monthly data will be crucial in guiding decisions on the pace of any necessary changes.