MNI: Fed's Bostic Maintains Outlook For One Rate Cut This Year

Federal Reserve Bank of Atlanta President Raphael Bostic said Tuesday his economic outlook is little changed from March, when he penciled in one interest rate cut later this year, adding he also remains attentive to signs that businesses are starting to adjust their pricing and labor strategies. 

"I don’t have any reason to think that my outlook is going to change radically," he told reporters on a call. "The last SEP I put one cut for the year. I still think there’s space for that. A lot of it will depend on how the uncertainty resolves itself. I’m going to stay diligent and take things on as they happen." 

The 12-month core PCE inflation at 2.5% in April shows no clear signs of tariffs but inflation is stalling out above target, and tariffs could put upward pressure on prices in the coming weeks, he said. 

"There's still a ways to go in terms of the progress we're going to need to see," Bostic said.

Whether the import levies will have a persistent effect on inflation is up for debate, he said. Most textbook models assume tariffs get applied once and have a one-time impact on prices, but "that’s not the environment we’ve had over the last several months," Bostic said. "There’s a question about how people will respond and take on board a rollout that extends over a protracted period of time."

Businesses have told the Fed bank they've so far employed strategies to forestall higher prices through the months of May, June or July. Going forward, large companies appear more willing to wait and can implement strategies to weather extended periods of tariff uncertainty, but smaller businesses may not be in a similar position, Bostic said. 

"Today we're still hearing from most businesses that they haven't had to pull the trigger on a strategy, but we're watching very closely to see if and how that changes," he said. (See: MNI INTERVIEW: Tariff Uncertainty To Drive Factory Outlook-ISM)