Top Fed Official Warns Against Hasty Rate Cuts Amidst Inflation Fluctuations

A senior official at the Federal Reserve has cautioned that inflation could fluctuate unpredictably should policymakers decide to cut rates too hastily. This warning arrives amidst a gradual decline towards the central bank's 2% target.

As reported by Financial Times, after reaching its highest level in several decades in the summer of 2022, U.S. inflation saw a sharp decline in the latter half of the year, prompting discussions about potentially reducing borrowing costs from their 23-year high of 5.25 to 5.5%.

Raphael Bostic, the Atlanta Fed president and a voting member on the Federal Open Market Committee's decisions this year, expressed his anticipation of a more gradual increase in inflation going forward. He even hinted at the possibility of inflation coming to a complete halt.

Bostic's comments came prior to a December Consumer Price Index (CPI) reading, which showed headline inflation inching up to 3.4% from 3.1% in November.

See Also: Fed Rate Cuts In March? Keep Dreaming, Economists Say As Inflation Spike Shakes Markets

According to Bostic, while price pressures fell more quickly than anticipated last year, he still believes inflation will hover around 2.5% by the end of 2024 and only reach the Fed's target in 2025.

He also noted that current disruptions to shipping traffic in the Suez Canal due to targeted attacks on vessels by the Houthis need to be closely monitored. These disruptions have led to a nearly 150% increase in the cost of shipping a 40-foot container from the Far East to Europe over the past month.

Bostic reiterated that despite the current unemployment rate at 3.7%, the labor market is still strong enough that the Fed's focus should remain on inflation rather than job creation.

Investors, however, are more eager, pricing in six quarter-point cuts this year, starting in March, in contrast to the Fed's expectations of three cuts and Bostic's own prediction of just two.

Read Next: Falling Inflation: Who Are Likely To Be The Stock Market Winners?

This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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