Fed's Bostic: No rate cuts next year

Atlanta Fed president Raphael Bostic said Tuesday that he did not support cutting rates last week and does not see a case for cutting rates next year unless inflation drops.

When asked by Yahoo Finance whether he sees holding rates steady for the foreseeable future, Bostic said yes. He thinks the economy will be stronger next year, in part because of a rebound in growth from the fall government shutdown, but also because the new tax law will stimulate growth.

“A lot of that stuff is about to come through, and I think that is going to put some wind in the sales of the economy in ways that are likely to put some additional upward pressure on inflation,” Bostic told reporters. “So we’re going to have to, in my view, keep our policy in a modestly restrictive posture just to try to hold the line, and then we’ll sort of see how things shake out as we get to the latter part of the year, in terms of labor markets and growth.”

Bostic noted that he would have preferred to hold rates steady at the last meeting for several reasons: He still sees significant pricing pressures, the economy has been more resilient, and at the time of the meeting, there was still a lot of data to come. Bostic said he felt the Fed had the space and time to wait for a deeper understanding of the state of the economy and see whether a new narrative is emerging.

Bostic said the November jobs report has not changed his outlook.

He said he’s more concerned about sticky inflation than the job market. He doesn’t see inflation returning to the Fed’s 2% goal until 2028, whereas many of his colleagues expect it to happen in 2027. That’s because of what he’s hearing in surveys of businesses that show they are incurring higher input costs due to tariffs and plan to pass them on to consumers.

“I continue to view price stability as the clearer and more pressing risk despite shifts in the labor market,” Bostic said.

Read more: How to maximize your interest earnings following a Fed rate cut

While Bostic acknowledged that the job market is, “at best, moving sideways, and there is good reason to believe that conditions are softening,” he believes much of the dynamics are being driven by major policy changes.

“I am in no way dismissing concerns about the health of the labor market,” Bostic said. “I’m just not convinced right now that aggressive monetary policy is the proper remedy. In the current circumstances, moving monetary policy near or into accommodative territory, which further federal funds rate cuts will do, risks exacerbating already elevated inflation and untethering the inflation expectations of businesses and consumers.”

“That is not a risk I would choose to take right now,” he added.

Bostic pointed to an analysis by economists at the Atlanta Fed that suggests the job market is not likely at a negative inflection point.

He said he does not view a severe downturn in the job market as the most likely in the near term.

Bostic stressed that his “strong sense” is that volatility in fiscal, trade, and other policies is not something that lower interest rates can overcome.

He announced this fall that he will be stepping down as president of the Atlanta Fed at the end of February. Bostic said that as the date was approaching, it forced him to think about what he really wanted for his future.

“This decision was mine to make, and I made it on my own,” Bostic told reporters. “There’s still a lot of other things I want to do.”

Jennifer Schonberger covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram.

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