Atlanta Fed President Raphael Bostic is accelerating his estimates of when interest rate cuts could begin, telling Yahoo Finance that September or November is “definitely in play” and that an initial 25 basis point cut “may be the most appropriate way forward.”
“For most of this year, my view and my expectation has been that we will do one cut this year and that will be in the fourth quarter,” he said during an interview Friday at the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming.
“Inflation has come down faster than I expected. Labor markets have weakened considerably… All of that suggests to me that it would be appropriate to move forward with the beginning of our interest rate move.”
So, “being open to something in the third quarter — September or November — is definitely impactful.”
The central bank policymaker made his comments after Federal Reserve Chairman Jerome Powell said in a speech in Jackson Hole that “the time has come to adjust policy,” giving markets a very clear signal that lower interest rates are coming.
Powell’s speech comes just over three weeks before the Fed’s Sept. 17-18 meeting, which is expected to see the central bank announce its first rate cut since 2020.
Read more: Federal Funds Rate: What It Is and How It Affects You
But Powell was tight-lipped on whether the first cut would be 25 basis points or 50 and whether September was actually the starting point, saying that “the timing and pace of rate cuts will depend on incoming data, evolving expectations, and the balance of risks.”
Philadelphia Fed President Patrick Harker told Yahoo Finance in a separate interview on Friday that he expects the central bank to start with a 25 basis point cut and would be open to a larger cut if the labor market suddenly deteriorates.
“Starting at 25 makes a lot of sense to me,” Harker said.
A 25 basis point move “may be the most appropriate way forward” if inflation remains consistent with the cooling trends of the past few months, Bostic added.
“I’m trying to wait and see what happens.”
He, like other policymakers, is closely watching the jobs market as business conditions cool.
Companies aren’t as eager to hire as they were a year ago, but Bostic said he hasn’t heard of many layoffs on the horizon yet. Wages are still above the rate of inflation, he noted.
Asked if the labor market could cool without pushing the economy into recession, he said, “It could, and we’ll have to see if it does.”
But recession is “not in my view”.
If companies do start laying off workers, that could change the Fed’s calculations, he acknowledged: “That’s a different scenario and would require a different policy response.”
Market bets for a bigger move in September rose Friday morning. Markets are now pricing in a 34.5% chance that the Fed will cut by 50 basis points by the end of its September meeting, up from about 24% the day before. According to CME’s FedWatch tool.
Loretta Mester, the former Cleveland Fed president who resigned from the central bank’s interest-rate-setting committee less than two months ago, told Yahoo Finance in an interview that she doesn’t want to start with 50 basis points because “that really signals the Fed is behind the curve and I don’t think the Fed is.”
“I think a reasonable baseline would be 25,” she added.
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