Fed's Raphael Bostic: Central bank won't wait until inflation falls to 2% to cut rates

Raphael Bostic: We are going to see inflation come down very slowly over the course of the year

Federal Reserve Bank of Atlanta President Raphael Bostic discusses the year-over-year rate of inflation on 'The Claman Countdown.'

Atlanta Federal Reserve President Raphael Bostic on Thursday told FOX Business' Liz Claman that central bankers are unlikely to deliver an interest rate cut in July amid signs that inflation progress has slowed.

Asked whether there is a scenario in which the Fed would start to ease rates in July, Bostic said, "I'm keeping my eyes on the short-run trajectory, and if we can continue to see that trajectory move forward, I think we will be in a good place. I don't think that's going to be in July."

He added that he is looking for economic data that shows the economy is "sufficiently strong" and inflation has moved closer to the Fed's 2% target before supporting any rate reductions, but he noted, "That's not my outlook today."

FED MEETING MINUTES SHOW SOME 'WILLINGNESS' TO HIKE RATES AGAIN

Still, Bostic – who is a voting member of the 12-person Federal Open Market Committee this year – said he would not wait until inflation falls to 2% in order to start loosening monetary policy.

Raphael Bostic, president and chief executive officer of the Federal Reserve Bank of Atlanta, speaks during the National Association of Business Economics (NABE) economic policy conference in Washington, D.C., on March 21, 2022. (Photographer: Valerie Plesch/Bloomberg via Getty Images / Getty Images)

"That would really cause inflation to overshoot, and that wouldn't be ideal," he said. Bostic anticipates that inflation will come down "very slowly" over the course of the year, and eventually settle around 2% in 2025 or even later.

Officials voted at their most recent meeting in May to hold interest rates steady at a range of 5.25% to 5.5%, the highest level since 2001. Although policymakers left the door open to rate cuts later this year in their post-meeting statement, they also stressed the need for "greater confidence" that inflation is coming down before easing policy.

INFLATION INCREASES 3.4% IN APRIL AS PRICES REMAIN ELEVATED

Since then, there has been some evidence that inflation is starting to ease again, albeit slowly. The April consumer price index showed that inflation had cooled slightly to 3.4%, down from 3.5% the previous month, alleviating investor concerns that prices were heating up again.

The Marriner S. Eccles Federal Reserve building in Washington, D.C., on Wednesday, July 6, 2022. The Federal Reserve will unveil details of what policy makers debated last month that may shed light on how they view the near-term path for interest rat (Photographer: Al Drago/Bloomberg via Getty Images / Getty Images)

But minutes from the meeting released last week showed that officials are prepared to keep rates elevated for longer after a string of disappointing inflation readings in the first three months of the year – and willing to hike again if needed.

"Participants noted disappointing readings on inflation over the first quarter and indicators pointing to strong economic momentum, and assessed that it would take longer than previously anticipated for them to gain greater confidence that inflation was moving sustainably toward 2 percent," the minutes said.

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Bostic said Thursday that he does not expect to raise rates again this year unless there is evidence that price pressures are heating up again within the economy.

"I've been on the record for more than a year now saying, 'I don't think that's going to be required for us to get to our 2% target,'" he said. "I still believe that today. But if it were the case that inflation moved in the other direction, and we started to see some reacceleration in pricing power, I'd have to take on board the likelihood that a rate increase is appropriate. But I don't see that happening today."