MNI: Fed's Bostic Wants Rates On Hold In 2026 Due To Inflation

Federal Reserve Bank of Atlanta President Raphael Bostic said Tuesday he would have preferred not to cut interest rates last week and penciled in no cuts for 2026 as he sees inflation likely to stay above 2.5% even a year from now. 

An unexpected jump in the unemployment rate to 4.6% last month and other signs of labor market softening in the November jobs report "haven't changed my perspective on things that much," he told reporters on a call. 

"At the last meeting I would have preferred to hold rates where it was," he said. Aggregate economic performance has been quite resilient, and surveys suggest that's likely to be sustained. 

For 2026 "I didn't pencil in any cuts, because I think the economy is going to be a bit stronger." 

GDP growth next year could be in the 2.5% range, pulling forward some activity lost during the federal government shutdown and also boosted in part by stimulative policies in the new tax bill, Bostic said. 

"That is going to put some wind under the sails of the economy in ways that are likely to put some additional upward pressure on inflation," he said.  "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."

INFLATION TOO HIGH

Labor market signals "remain too ambiguous to warrant an aggressive monetary policy response when weighed against the more definitive risks of ongoing inflationary pressures," he wrote in an essay published Tuesday on the Atlanta Fed website. The November jobs report was a mixed picture because hiring came in stronger than many expected, he said. (See: MNI: Fed Biased To Ease With Focus On Jobs - Ex-Officials)

Meanwhile, inflation has been running above target for five years and counting. "The aggregate number as measured today is much higher than our target and it's been that way for quite a long time." 

Bostic said he thinks inflation may persist longer than some of his colleagues because businesses surveyed by the Fed bank say they see input costs higher than before and are intent on preserving margins. 

"To do that, there's going to be upper pressure on prices," he said. "Their responses we're getting suggest that those pressures will sustain in ways that will warrant a reaction well into 2026. So that combination of things has me much more concerned about how inflation will evolve over the next six to 12 months."

"The longer that we stay away from target, the more people potentially question that we're really committed to getting to that target. That runs a real risk of undermining our credibility. And once we lose that, the ability of us to get to any of our targets becomes much more challenging."