Bostic from the Fed notes strong economic momentum and predicts a Q4 rate cut

Federal Reserve Holds Steady on Rate Cuts as Inflation Target Gradually Materializes

The economy is not showing signs of slowing down at a faster pace, as expected, according to the speaker. If there is any weakening, it is only at a very incremental level. In the long run, the economy needs to slow down in order to reach the longer-run inflation target. The speaker is considering only one rate cut this year and closely monitoring the situation to see how things evolve. If the economy progresses as expected, it may be appropriate to start cutting rates in Q4. The speaker predicts that inflation will reach the target in 2026.

However, certain secondary measures in the inflation numbers are causing concern, indicating that things may slow down even more. The speaker is not in a rush to disrupt the economy dynamics as long as inflation is moving towards the target. Contacts have not raised any concerns about employment. The speaker’s hawkish stance may not quiet the conversation about a more hawkish Federal Reserve.

These secondary measures in the inflation numbers include trends such as higher growth rates for certain goods in the CPI basket beyond 3% and 5%. These trends are reminiscent of previous high inflation periods and will be closely monitored by the speaker before considering a change in policy rate.

Overall, while there are some concerns about secondary measures within inflation numbers, if employment remains stable and overall economic conditions continue on track, it may be appropriate for central bankers to wait before making any drastic changes to their policy rate.

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