Fed’s Bostic expects two rate cuts in 2025, but sees need for caution

Washington — Atlanta Federal Reserve president Raphael Bostic said on Thursday the US central bank should still be able to lower interest rates by a 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 is “my baseline expectation”, Bostic told reporters on a call, but “the uncertainty around that is pretty significant … There’s a lot that could happen that could influence that in both directions.”

In an essay released on Thursday, Bostic said he did not think the US 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.

“Taken as a whole, recent inflation data have supplied evidence for both optimism and pessimism,” Bostic wrote in the essay, which outlined where the US central bank stands as it decides whether to further lower interest rates.

Bostic is not a voting member of the rate-setting Federal open market committee this year.

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 allow the Fed to cut rates only 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 at about 4%, and businesses say expected deregulation may ease cost pressures, he wrote.

But that overall “happy place” for the economy should not be taken for granted, Bostic said.

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.

“In a nutshell, contacts are concerned that tariffs could increase costs. Many feel confident that if that happens, they can pass along higher costs in their prices.”

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.

He said his baseline, however, remained that inflation “will continue a bumpy course towards the committee’s 2% objective”.

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.”

Reuters