
Fed’s Bostic Says Economy is Returning to Normal, Policy Should Also ‘Normalize’
Raphael Bostic, President of the Atlanta Federal Reserve, has expressed confidence that the U.S. economy is making progress toward achieving price stability, which supports his call for a reduction in the federal funds rate.
In remarks prepared for an event at the European Economics and Financial Centre, Bostic outlined his rationale for advocating a 50-basis-point reduction during the September 2024 Federal Open Market Committee (FOMC) meeting.
“Progress on inflation and the cooling of the labor market have emerged much more quickly than I envisioned at the beginning of the summer,” Bostic remarked. He noted that both the personal consumption expenditures (PCE) and consumer price index (CPI) inflation measures have fallen to 2.5%.
Bostic highlighted that price pressures, especially in the housing market, have been easing. He explained that the decision to cut rates aims to recalibrate monetary policy to establish a more balanced risk between maintaining price stability and maximizing employment.
“I now perceive the two sets of risks as much more balanced,” he asserted, indicating that inflation and employment levels are approaching what might be considered normal.
“In this moment, I foresee the normalization of monetary policy occurring sooner than I initially believed would be appropriate just a few months ago,” he added.
While some analysts expected a smaller rate reduction, Bostic stated that the uncertainty in the labor market justified a more decisive approach. He emphasized, however, that this rate reduction “does not commit us to a specific pace for future moves.”
Future policy changes will remain reliant on data, considering the shifting economic environment.
Bostic concluded that the Fed’s previous restrictive monetary stance was no longer necessary. He indicated that moving toward a more neutral policy rate would mitigate potential harm to the labor market while continuing to foster price stability.
“It is time to normalize policy in pursuit of the Committee’s dual mandate of price stability and maximum employment,” he said.