Tariffs Boost Inflation Expectations, Bostic Warns Fed Needs to Be More Cautious, Prefers Only One Rate Cut in 2025
Raphael Bostic, President of the Federal Reserve Bank of Atlanta, stated on Monday (May 19) that although the Federal Reserve's March forecast still shows two rate cuts in 2025, he personally prefers only one rate cut for the entire year. Amid gradually rising inflation pressures and market focus on policy outlook, Bostic's remarks are particularly notable.
Inflation Concerns Outweigh Recession Worries, Bostic Prefers to Wait and See
In an interview, Bostic clearly expressed that his main concern is inflation potentially rising again, especially given the "disturbing" trend in consumer expectations. He said, "We see inflation expectations changing in a way that is not desirable, making our policy-making more challenging."
He added, "I now expect this process to take a longer duration." Therefore, he believes the Federal Reserve should "wait for clarity" before adopting further easing policies, emphasizing his inclination towards a cautious path with only one rate cut in 2025.
Although Bostic is not currently a voting member of the Federal Open Market Committee (FOMC), his views are widely seen as reflecting internal Fed debates and considerations.
Tariff Policies Increase Economic Uncertainty
Since President Trump's return to office in January 2025, U.S. trade and tariff policies have experienced multiple fluctuations. On April 2, the U.S. government announced tariffs on nearly all trading partners, but execution was paused for 90 days, imposing a uniform 10% rate on most countries. Meanwhile, the U.S. reached a 90-day tariff truce with major Asian economies, which, although nominally "cooling," still maintains a tariff level higher than before Trump's first term.
Bostic believes that even partial tariff reductions have "significant economic impacts," potentially affecting price levels and business costs through various channels.
Fed Faces Policy Dilemma, Inflation Back in Focus
Currently, the Federal Reserve faces a challenging decision: on one hand, the U.S. economy continues to demonstrate resilience with a robust labor market; on the other hand, the process of reducing inflation is slow, limiting room for policy adjustments. A consumer confidence survey last week showed that public concern over future price increases is intensifying, underscoring the Fed's need to maintain stable policies.
Bostic emphasized the Fed's dual mandate—to maximize employment and maintain price stability—currently appears divided. He made it clear: "Given the current situation, I am more concerned about prices."
Conclusion:
Under the dual pressures of changing global trade patterns and rising domestic inflation expectations, Bostic's cautious signals may indicate further tightening of the Fed's pace in rate cuts. Although some market participants still anticipate the start of an easing cycle later this year, voices within the Fed suggest a genuine shift in rates might be "a step behind" market expectations. Investors will closely watch statements from other FOMC members and upcoming economic data that might provide more support for policy easing.
