Atlanta Fed President Raphael Bostic expressed optimism on Friday, stating that he believes inflation will decrease to the central bank’s target of 2% within the next eight to ten months. In an interview on Bloomberg Television, when questioned about the timeframe for achieving this target rate, Bostic responded, “I would say it’s going to be in the second half of next year.” While acknowledging the potential for unforeseen circumstances, he chose not to provide a more precise estimate.
This projection from Bostic contrasts with the Federal Reserve’s own forecast. The median forecast of top Fed officials, as well as a separate Fed staff forecast, both indicate that inflation will remain slightly above 2% until 2026.
Currently, the Fed’s inflation measure, the personal consumption expenditure price index, is indicating an annual rate of 3.4% as of September, the most recent available data. Excluding volatile food and energy prices, the core index is showing a rate of 3.7%.
Bostic emphasized that the Fed’s benchmark interest rate, which currently ranges from 5.25% to 5.5%, is sufficiently high to exert downward pressure on inflation. He believes that inflation can be brought down to the target without causing a recession in the economy.
He further stated that in 2024, there will be slow and consistent growth that follows a methodical path.
Regarding potential interest rate cuts, Bostic indicated that such actions would be considered as inflation approaches 2%. However, he noted that waiting until inflation reaches exactly 2% before lowering interest rates would not be ideal. Rather, rate reductions should occur before that threshold is reached.
Financial markets responded positively to Bostic’s remarks, with stocks (DJIA SPX) rising and the 10-year Treasury note (BX:TMUBMUSD10Y) experiencing a significant decline. This indicates investor hopes that the Fed has finished raising interest rates.
Bostic expressed confidence in the positive impact of the Fed’s policies on the economy, stating that the data suggests these measures are effectively working towards achieving the target inflation rate of 2% with minimal adverse effects.
Finally, based on feedback received from various business contacts, Bostic concluded that the pace of economic growth is slowing down.
