Fed’s Bostic casts doubt on rate cuts this year even if there’s a recession

Fed’s Bostic casts doubt on rate cuts this year even if there’s a recession

Atlanta Federal Reserve Chairman Raphael Bostic said Monday that he doesn’t expect interest rates to be cut until at least 2023, even if there is a recession.

“For me, inflation is task #1. We have to get back to where we’re going,” he told CNBC’s Steve Liesman during a Squawk Box interview. “If there’s a cost to doing that, we have to be willing to do that.”

His comments came as the Fed has hiked rates 10 times since March 2022 in a bid to slash inflation, which a year ago hit its highest level since the early 1980s.

While year-on-year inflation is still well above the central bank’s target of 2%, market prices suggest the Fed is done raising rates and will indeed cut rates several times before the end of the year. This is largely based on expectations that the economy is headed for a sharp downturn and a likely shallow recession, as predicted by the Fed’s own economists.

However, Bostic said he doesn’t expect any cuts any time soon and rather expects an increase to be more likely at this point.

The consumer price index released last week showed headline inflation at 4.9% a year, while core inflation – which excludes food and energy and is usually given more emphasis by Fed officials – was 5.5%.

“What we have seen is that inflation is persistently high, consumers have been very resilient in their spending and labor markets remain extremely tight. All of this suggests that there will continue to be upward pressure on prices,” he said. “If there is to be a tendency to act, then for me it would be a tendency to keep going up rather than down.”

Bostic spoke at the Atlanta Fed’s financial markets conference.

Chicago Fed President Austan Goolsbee also spoke to CNBC and said he is taking a more cautious approach to policymaking at a time of heightened uncertainty.

“In these big times of uncertainty, we should be careful and patient and look at a lot more data than we normally do,” Goolsbee said. “We still have a few weeks until the next meeting, but [we’re] Watch the credit problems, watch the madness of the debt ceiling, and watch what’s happening in the labor market and in prices.

On inflation, Bostic said he remains optimistic, while Goolsbee said, “Inflation is improving, but not as fast.”

Bostic found that in the CPI report, which covers the prices consumers pay for a wide mix of goods and services, fewer than half of the items were above 5% on an annualized basis.

That’s at least an indication that things are moving in the right direction.

“There is still strong confidence that our policies can bring inflation back to our 2% target,” Bostic said. “And to be perfectly clear, we will do whatever is necessary to ensure that happens.”