FED Member Bostic Answered the Question of a 50 Basis Point Rate Cut: “Everything is on the Table”

A top Fed official expressed openness to a rate cut in September and said timely action is needed to ease monetary policy amid signs of a cooling in the labor market.

Raphael Bostic, president of the Atlanta Federal Reserve and a voting member of the central bank’s interest rate-setting committee, told the Financial Times that as inflation pressures ease, it is crucial for officials to consider their duty to maintain full employment.

“Now that inflation has come into a range, we need to look at the other side of the spectrum, and there we have seen the unemployment rate rise significantly from low levels,” Bostic said. “But it does make me think about what the appropriate timing is, and so I am open to something happening in terms of us taking action before the fourth quarter.”

Bostic said the risks are high for the Fed as it considers when and how quickly to ease policy. “Waiting brings risk, and that’s why we have to be extra careful,” he said. “Because our policies move in both directions with a lag, we can’t afford to be late. We have to act as soon as possible.”

The comments by the Atlanta Fed president support market expectations that the central bank could begin cutting interest rates in September for the first time since the Covid-19 pandemic devastated the U.S. economy in 2020.

On Wednesday, Bostic described the labor market as “weakening but not weak,” noting that businesses in the southern U.S. are pausing to hire rather than laying off workers. Asked whether the Fed would consider cutting interest rates by half-point rather than quarter-point if the labor market weakens faster than expected, Bostic said “everything is on the table.”

“If we see a deterioration that suggests labor markets are going to collapse or could collapse, I would be very supportive of moving more assertively to minimize the amount of that pain,” he added, but clarified that that is not the current outlook.

*This is not investment advice.