Fed’s Bostic Sees One Cut in 2025 as Tariff Effects May Persist
Federal Reserve Bank of Atlanta President Raphael Bostic recently reiterated a stance that might feel a touch out of step with broader market expectations: he still views one interest-rate cut as likely this year. But what’s particularly interesting isn't just the number of cuts, but his rationale, which points to a potentially sticky issue on the inflation front – the lingering effects of tariffs.
Speaking on the economic outlook, Bostic underscored his skepticism that the inflationary pressures stemming from tariffs will prove to be temporary. This isn't a new concern for him; he’s been vocal about how trade policies, specifically tariffs, can embed higher costs into the economic system, making the Fed’s job of taming inflation that much harder. Think about it: when the cost of imported goods rises due to tariffs, businesses often have to absorb some, or pass on all, of that increase to consumers. This isn't a one-off shock; it can ripple through supply chains, affecting raw materials, intermediate goods, and ultimately, finished products.
What's more, Bostic's perspective highlights a critical nuance in the ongoing disinflationary debate. While many economists and market participants have focused on the unwinding of pandemic-era supply chain snarls and the moderation in demand, Bostic is drawing attention to a structural element of inflation. If tariffs are indeed creating a more persistent upward pressure on prices, then the path back to the Fed’s 2% inflation target becomes significantly more challenging. It means that even as other disinflationary forces play out, a baseline level of price stickiness remains due to trade policy.
This perspective puts Bostic somewhat in the more hawkish camp within the Federal Open Market Committee (FOMC), which has seen a range of views on the appropriate path for monetary policy. While some Fed officials have penciled in two or even three cuts for 2024, Bostic’s single-cut forecast for this year – implying a long wait before any significant easing – signals a cautious approach driven by a deep dive into the underlying drivers of inflation. He’s essentially saying: let’s not get ahead of ourselves assuming these tariff-induced price bumps will simply fade away. They could be more ingrained than many hope.
For businesses, this outlook carries significant implications. If Bostic’s view gains more traction within the Fed, it suggests a longer period of higher borrowing costs. Companies planning investments, managing debt, or simply forecasting consumer demand will need to factor in a continued environment of elevated interest rates. Moreover, it reinforces the need for robust supply chain management, as the cost of goods and components remains susceptible to geopolitical and trade policy shifts, rather than just traditional market dynamics. It’s a reminder that the global trade landscape isn't just about export numbers; it's intricately linked to domestic price stability.
Ultimately, Bostic's comments serve as a valuable reminder that the Fed's decision-making process is complex, influenced by a multitude of economic signals, and constantly weighing the risks of acting too soon versus waiting too long. His focus on tariffs adds another layer to the inflation puzzle, suggesting that even as we monitor the usual suspects like labor markets and consumer spending, we also need to keep a keen eye on the less obvious, yet potentially more persistent, forces at play in the global economy.
