Raphael Bostic, president of the Federal Reserve Bank of Atlanta, said that policymakers should continue to focus on addressing inflation, and he expects high price pressures to persist for most of next year.
Bostic also disclosed that at the Fed’s policy meeting on December 9-10, he not only favored keeping interest rates unchanged but also suggested maintaining them until 2026, citing that favorable factors for economic growth might continue to exert upward pressure on inflation. Bostic did not have a vote on the Federal Open Market Committee this year, while the majority of the voters at the December meeting ultimately supported a 0.25 percentage point cut in interest rates.
In an article published on Tuesday, Bostic wrote: “After weighing various factors, despite changes in the labor market, I still believe that price stability is the clearer and more urgent risk at present. I think that price pressures will not ease until the second half of 2026 at the earliest, and I expect that even by the end of 2026, the inflation rate will remain above 2.5%.”
Fed policymakers have sharply different views on the appropriate path for interest rates. Last week’s rate cut was the third this year, but it was opposed by three policymakers – including two regional Fed presidents who favored keeping rates unchanged and Fed governor Stephen Mnuchin, who advocated for a larger 0.5 percentage point cut. Additionally, six policymakers submitted interest rate projections last week indicating their opposition to the rate cut.
Previous median forecasts indicated that policymakers expected one rate cut next year. But Tuesday’s delayed economic data showed that the unemployment rate rose to 4.6% in November. According to the pricing of futures contracts, investors predict two rate cuts next year, each by 25 basis points.
The president of the Atlanta Fed said that the objections to the interest rate change last week indicated that the decision was “narrowly approved”. But he said that although labor demand is cooling, he does not think a “severe labor market downturn” is the most likely scenario.
After the pandemic, some companies may have over-expanded, leading to a reduction in staff at some companies; others may use technology to replace employees – he believes that both of these changes are structural and cannot be addressed by adjusting interest rates.
Regarding inflation, Bostic said that business surveys conducted by the Atlanta Fed show that companies expect to keep raising prices “until 2026”, and it’s not just those directly affected by tariffs that are feeling the pressure. He pointed out that high “core” services inflation, excluding housing, could keep the overall inflation rate around 3%.
Bostic said, “If the underlying inflationary pressures persist for several months, I am concerned that the public and price setters will eventually doubt whether the Federal Open Market Committee can achieve its inflation target within any reasonable time frame.”
Bostic announced last month that he would retire at the end of his term on February 28. The terms of all 12 regional Fed presidents are five years and must be reappointed by the Fed’s Board of Governors. The Fed’s Board of Governors unanimously approved the reappointment of the other 11 Fed presidents last week. The board of the Atlanta Fed announced on Monday that it has initiated the search for Bostic’s successor.
When asked whether the upcoming reappointment process (during which the performance of regional Fed presidents is reviewed) played a role in his departure, Bostic said, “This was my own decision. I made it on my own.”
