Fed's Bostic: Inflation Target on Track for Early 2026, No Rush to Cut Rates Soon

Remarks of Officials

Summary:

Atlanta Federal Reserve President Raphael Bostic indicated that U.S. inflation is projected to return to the target level by early 2026, with the neutral interest rate likely to be between 3% and 3.5%, approaching this range by early next year.

On February 19, Raphael Bostic, President of the Federal Reserve Bank of Atlanta, gave an interview, with the following key points:

The January Consumer Price Index (CPI) data exceeded expectations, but it is too early to determine whether this marks a new inflationary trend. The data showed that the core CPI, excluding food and energy, rose by 0.4% MoM, higher than the 0.2% increase in December and marking the largest monthly gain since April 2023. Additionally, the YoY increase in core CPI was 3.3%, slightly above December's 3.2%, representing the first uptick in inflation since July of last year. U.S. inflation is expected to decline to around the 2% target level by early 2026. The neutral interest rate is anticipated to be between 3% and 3.5%, with the potential to approach this level by early next year. Policymakers will continue to monitor data over the coming months to assess whether there is a change in the inflation trajectory.

As long as the economy remains robust, officials are prepared to maintain interest rates at a restrictive level until inflation cools further. Some officials have also proposed slowing or pausing the pace of the Federal Reserve's balance sheet reduction, as debt ceiling dynamics over the next few months could cause significant fluctuations in reserves.

Bostic emphasized that the current stance remains restrictive. Policymakers should be more cautious than they were over the past six to eight months, with the debt ceiling being one factor and how banks allocate capital also being an issue to watch. The economic policies of the Trump administration add uncertainty to inflation, with some potentially exacerbating inflationary pressures and others possibly promoting investment. Bostic expressed agreement with the idea of the Federal Reserve pausing policy adjustments under the current economic conditions to observe how the economy evolves and using this information to guide policy-making over the next few months.

Overall, if inflation continues to rise, the Fed may delay rate cuts and even reconsider the possibility of further tightening. Conversely, if economic growth slows and inflation declines, there could still be room for rate cuts within the year.

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Fed's Bostic: Inflation Target on Track for Early 2026, No Rush to Cut Rates Soon

Risk Disclosure