Federal Reserve Bank of Atlanta President Raphael Bostic signaled a firm stance on monetary policy, suggesting the central bank should remain patient and restrictive as the path to 2% inflation remains clouded by potential price shocks.
Despite market hopes for a faster easing cycle, Bostic’s recent commentary paints a picture of a cautious central bank grappling with persistent price pressures and a shifting economic landscape.
Bostic expressed clear frustration with the current state of price stability, noting that inflation has been "stuck in place" for two years. He emphasized that the Fed is still waiting for "clear evidence" of a return to the 2% target.
A significant headwind in this battle is the looming impact of trade policy. Bostic highlighted that tariff effects have yet to fully filter through to consumer prices, with expectations that these impacts will persist through the first half of 2026. Consequently, he expects inflation to "mark time" for the majority of this year.
In light of these risks, Bostic argued against immediate rate cuts. The Fed needs to remain "somewhat restrictive" to ensure inflation doesn't become entrenched. A "two-cut" scenario is not his baseline expectation, given how stubborn inflation has proven to be.
While he acknowledges that inflation and employment risks are currently in balance, he noted that "downside risk to employment is much further away now," giving the Fed more room to focus on prices. "The Fed does not need to be moving down right now. We still have ways to go on inflation and need to remain vigilant."
Regarding the Fed’s balance sheet, Bostic advocated for a "Treasury-only" approach. He suggested the Fed should exit its holdings of Mortgage-Backed Securities (MBS) and eventually allow the balance sheet to grow organically in line with the broader economy.
Bostic also addressed the incoming leadership changes and the nomination of Kevin Warsh. While calling Warsh "thoughtful," Bostic reminded observers that the Federal Open Market Committee (FOMC) is a collective body. "Every chair comes with a view," he noted, but ultimately, rate decisions are the product of a 12-person consensus, safeguarding the Fed's institutional independence.
