A recent survey of economists found that two more rate cuts this year, despite inflation concerns, seemed likely — but Federal Reserve Bank of Atlanta President and CEO Raphael Bostic begs to differ.
“What I would say is there's a lot of uncertainty. Forecasting is maybe a bit more challenging than it's been in the past,” he said in an interview with Bloomberg, adding that his projection was one interest rate cut of 25 basis points in 2025.
Currently, the benchmark federal funds rate controlled by the central bank is between 4.25% and 4.50%. If the polled economists were right, two 25 basis point cuts would bring the range down to 3.75% and 4%. A single 25-basis-point cut would leave the range from 4% to 4.25%.
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About 11% of the economists polled expect the Fed to slow the pace of quantitative tightening, the process of reducing its portfolio of assets. This would also lower rates.
“I was at two [rate cuts in 2025],” Bostic said. “I moved to one mainly because I think we're going to see inflation be very bumpy and not move dramatically in a clear way to the 2% target because that's being pushed back.”
There are growing indicators that inflation will indeed remain elevated, if not increased. Some of the Atlanta Fed’s business contacts in the Sixth District expected to pass along tariffs they’d see from President Donald Trump’s plans to consumers. Also, consumer sentiment has plunged to a 12-year low on the expectation of higher prices, according to the Conference Board's Consumer Confidence Index.
“I do know that consumer sentiment has started to take a dip,” Bostic said. “And the question that we face right now is consumer sentiment going to be a leading indicator like it was pre-pandemic? Or is it going to be something that doesn't really translate into actual observed behavior in the economy, that how it played out for most of the pandemic? Right now, it's an open question and it's one of the things I'm going to be watching very closely in the months to come.”
Bostic also said that business contacts are “quite bullish” about passing rising costs from tariffs to consumers, and the amount of price change they're expecting almost matches the cost change. “One for one, which is a complete pass-through, is the expectation.”
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