Fed Boss Bostic Turns Hawkish: "One Rate Cut Expected This Year"

Initially 2 Rate Cuts Shifted to 1 Rate Cut
"Confidence in Inflation Declines"

Raphael Bostic, President of the Federal Reserve Bank of Atlanta, part of the U.S. Federal Reserve (Fed), expects only one interest rate cut in the U.S. benchmark rate this year. Initially, he forecasted two cuts within the year, but due to higher-than-expected inflation, he revised his outlook on the future interest rate path to be somewhat more hawkish (monetary tightening).

According to Bloomberg News on the 24th (local time), Bostic, who holds voting rights at this year's Federal Open Market Committee (FOMC), said in a press briefing on the 22nd, "We need to review the incoming data over the next few weeks."

Previously, President Bostic mentioned that two 0.25 percentage point rate cuts would be appropriate this year. Regarding his reduction of the rate cut forecast to one, he explained that confidence in the recent slowdown in inflation has weakened compared to December last year. Bostic pointed out, "There are some issues beneath the headline inflation," highlighting the rise in consumer basket prices.

He stated, "The economy continues to surprise us and is much more resilient and vibrant than I expected," adding, "Ultimately, I adjusted the outlook when I thought it was appropriate to move." He emphasized, "A well-functioning economy gives us room for patience," and said, "We need to be more patient."

Regarding quantitative tightening, known as balance sheet reduction, Bostic said it would be appropriate to slow down the pace soon.

Bostic's remarks are more hawkish than the Fed consensus. On the 20th, the Fed held the federal funds rate steady for the fifth consecutive time at 5.25-5.5% following the FOMC meeting and signaled three rate cuts within the year. The dot plot showing rate projections maintained the year-end rate forecast at 4.6% (median), implying the possibility of three cuts. Initially, the market expected the Fed to reduce its rate cut forecast to two due to sticky inflation, but the Fed did not change its existing outlook.

The market is focusing on the core Personal Consumption Expenditures (PCE) price index for February, to be released on the 29th. The PCE price index is the inflation gauge the Fed watches most closely. With the Consumer Price Index (CPI) exceeding expert expectations for two consecutive months in January and February this year, attention is turning to the PCE price index. Experts expect that last month's core PCE price rose 0.3% month-over-month, a smaller increase than January's 0.4%.