Fed's Bostic Expects Two Rate Cuts in 2025 but Sees Widespread Uncertainty

  • Atlanta Federal Reserve President Raphael Bostic said on Thursday the U.S. central bank should still be able to lower interest rates by half a percentage point this year, though there remains extensive uncertainty about the impact of President Donald Trump's trade and immigration policies. Two quarter-percentage-point rate cuts are "my baseline expectation," Bostic told reporters on a call, but "the uncertainty around that is pretty significant ... There's a lot that could influence that in both directions."
  • In an essay released on Thursday, Bostic said he did not think the U.S. is facing a new burst of inflation, though he added that there was "widespread apprehension" among businesses about how new import taxes, immigration rules, and changes to regulations will affect the outlook.
  • The Fed held its benchmark interest rate in the 4.25%-4.50% range at its meeting last month and is expected to do so again at its March 18-19 meeting as officials wait for more clarity on how the economy responds to new tariffs and stricter immigration rules. Investors feel recently sticky inflation readings and the risks from tariffs and other policies may only allow the Fed to cut rates once this year.
  • Housing inflation is still expected to ease, Bostic said, relieving a major remaining driver of overall price increases. The labour market is showing signs of slack even while sustaining a low unemployment rate of around 4%, and businesses say expected deregulation may ease cost pressures, he wrote.
  • Firms are also planning to pass along new import taxes to consumers, he said, and are also worried about the impact stricter immigration rules may have on the availability of labour. Regarding upcoming policy shifts, "we've heard not only enthusiasm - particularly from banks, about possible shifts in tax and regulatory policies - but also widespread apprehension about future trade and immigration policy," Bostic wrote.
  • Businesses generally have not reacted to Trump administration plans that remain in flux, but the situation has created "pervasive" uncertainty about the course of the economy this year, Bostic said. That may eventually lead to further interest rate cuts, but for the time being Bostic said monetary policy was "in a good place and the economy is strong ... For various reasons, this is no time for complacency."

Source: (Reuters)