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A Hawkish Fed Official Is Rethinking His Stance on Rate Cuts

Oct 10, 2025 00:01:00 -0400 by Nicole Goodkind | #Federal Reserve #Feature

Atlanta Fed President Raphael Bostic recently visited Nashville to get a sense of business leaders’ economic concerns. (Andi Rice/Bloomberg)

Key Points

Raphael Bostic has spent most of 2025 as one of the Federal Reserve’s most steadfast inflation hawks. The Atlanta Fed president projected just one interest rate cut for the year when most of his colleagues on the Fed’s policymaking committee anticipated three. Even after the central bank trimmed rates by a quarter of a percentage point in September, Bostic said he would support delaying further rate cuts until 2026.

But recent economic data and conversations across his district, particularly during a two-day swing through Nashville, have given him pause. The gap between his concerns about inflation and his worries about a weakening labor market is narrowing, he says. The “risks between inflation and employment are much more balanced” than they have been “for the last three or four years,” Bostic told Barron’s after meetings with educators, government officials, business executives, and small-business owners in the Nashville area.

It is a notable evolution for a policymaker who has consistently argued that the bar for further rate cuts should remain high. Whether it signals a genuine change of view or a confirmation of the increasingly uncertain economic outlook confronting all Fed officials remains to be seen.

Bostic’s district covers Alabama, Florida, Georgia, and portions of Louisiana, Mississippi, and Tennessee, states that have largely benefited from the multiyear migration of companies and workers to the South. Tennessee’s unemployment rate in August was 3.6%, compared with 4.3% nationally. Alabama’s was just 2.9%.

Yet even in this relatively strong region, Bostic detected a shift. A few months ago, business leaders cited inflation as their primary concern. During his Nashville visit, the split was roughly even between worries about inflation and potential layoffs.

“That happened in like a two-week period,” he said. “It was very fast and very abrupt. I had just talked to them, and then the next time I spoke to them, they were in a very different place.”

The Fed’s dual mandate stipulates that it must pursue maximum employment and stable prices. Yet, whether measured by the headline or core rate, which excludes food and energy prices, inflation remains above the Fed’s 2% annual target; the personal consumption expenditures price index measured 2.9% in August.

At the same time, payroll growth has been trending lower. The economy added just 22,000 nonfarm jobs in August while the unemployment rate rose by a tenth of a percentage point to its highest level since 2021. (The government shutdown has delayed the reporting of September figures.)

The Fed’s latest Summary of Economic Projections, or SEP, published after its September policy meeting, revealed a pronounced split in the way Fed officials measured the risk of sticky inflation against that of a softening labor market. Ten officials, presumably fearing further labor-market deterioration, indicated the Fed should cut rates twice more this year, after its quarter-percentage-point rate cut at the September meeting. Nine, eyeing the inflation threat, projected no cuts, or one more. (All projections are made anonymously.)

Bostic is currently a nonvoting member of the Federal Open Market Committee. Next year he will be an alternate member, voting only in the absence of a primary member. He will become a voting member in 2027, consistent with the annual rotation among regional Reserve Bank presidents.

Even as a nonvoting member he participates in the quarterly SEP, contributing his forecasts for near- and longer-term economic growth, inflation, the unemployment rate, and the federal-funds rate. Despite his apparent willingness to modulate his stance based on new information, he remains cautious about declaring either a labor-market slump or victory over inflation.

“If things continue this way, cutting in a high-inflation environment when labor markets are relatively stable makes me nervous,” he said.

Still, he is listening to colleagues who warn about the employment outlook. “If enough people are saying this, I shouldn’t ignore it,” he says. “I’m still more worried about inflation, but it’s a narrower margin.”

Percolating concerns about employment have prompted him to re-examine what “normal” means in today’s labor market, he says. He believes a restrictive immigration policy, the spread of artificial intelligence, and the retirement of baby boomers have altered workforce dynamics in ways that make old benchmarks unreliable.

“What is the new benchmark for good performance in the labor market?” he says. “I don’t think it’s 120,000 [new] jobs a month anymore.”

The impact of immigration changes alone may not fully appear in employment data until 2026, he says. “We still have a ways to travel to figure out what a break-even number would look like.”

That puts Bostic on different ground than Stephen Miran, the newest Fed governor and a top economic advisor to President Donald Trump. Both see structural changes in the labor market, but Miran has called for significant rate cuts while Bostic remains reluctant to forecast more than one.

The divergence centers on tariffs and fiscal policy. “I’m not convinced that the tariff impacts on prices will be benign,” Bostic says. “There is a reasonable probability that the upward pressure will persist.”

Miran has argued otherwise. Bostic also questions whether recent tax legislation will prove as stimulative as Miran expects. “I’ve heard him say he thinks those will be extremely stimulative and productive,” Bostic says. “I’m not sure.”

In Nashville, Bostic spent two days touring construction sites, classrooms, and factories, meeting residents at every level of the local economy. He visited the East Bank Development, one of the city’s largest public-private projects, which aims to create housing, parks, and a corporate campus for Oracle. He toured Horn, a manufacturing plant that produces drill-bit components, met with students and teachers at Fisk University, and led roundtables with executives and small-business owners on how higher costs and policy uncertainty are shaping their decisions.

These outreach trips have become a central part of how Bostic and other regional Fed presidents do their job. After the Fed failed to anticipate the 2008-’09 financial crisis, policymakers made a deliberate effort to expand on-the-ground research, recognizing that local business leaders often detect changes before it appears in the official data.

Bostic repeatedly told Nashvillians that the Fed relies on real-time information from local business leaders. He encouraged people to reach out if they start noticing anything unusual economically.

Recently, he has heard that policy uncertainty has become the dominant factor in shaping how many firms operate, he says. “Many business leaders are [expecting] another shoe to drop, that there is going to be some new policy or some new geopolitical development that no one has anticipated,” Bostic says.

The result, he says, is caution that “manifests itself in limited engagement, which means the economy won’t take big steps up, but it also is unlikely to take big steps down.”

Some executives are beginning to treat higher tariffs as permanent and are adjusting accordingly, he says. Several mentioned further plans to raise prices, a decision Bostic views as strategic and likely to take effect in 2026. “Relative to when we talked about it the last time, folks have started to become more comfortable with just a heightened level of uncertainty,” he says.

Consumer spending remains solid, supported largely by high-income households even as lower- and middle-income Americans pull back. But consumer sentiment fell in September to 55.1, as measured by the University of Michigan survey. That’s the seventh-lowest reading since the survey began in 1952. Forty-four percent of respondents cited high prices as eroding their finances, the highest share in a year.

Housing affordability came up frequently during Bostic’s Nashville tour. As a former assistant secretary for policy development and research at the Department of Housing and Urban Development, Bostic views housing as both a driver of inequality and a constraint on business growth.

“If you’re not a homeowner, you probably don’t own stocks either, and now you’re falling behind, and you see it,” he says. “That is going to create tension and stress.”

For businesses, housing affordability increasingly is a competitive problem. “Being in places where the salaries they can afford to pay can barely buy a house is a huge challenge,” Bostic says. “If this doesn’t get solved, then these places will only be viable for the highest value-add companies. A lot of your mom-and-pops won’t be able to do it.”

The Fed’s rate cuts haven’t yet translated into lower mortgage rates, a dynamic Bostic finds particularly frustrating and suggestive of other dynamics at play. Long-term rates have remained elevated despite monetary easing. “There are these other issues that have got to be solved, and we don’t have a hand in them,” he says.

If the government shutdown, which began Oct. 1, drags on, Bostic and his Fed colleagues could face a new problem: a shortage of reliable data heading into the Oct. 28-29 FOMC meeting. “With this uncertainty, you’ve got X number of outcomes, and X is a large number,” he says. “Now we have to put a probability on each of those outcomes. The likelihood that 19 people would identify the same number of options and then put the same probabilities on them to get the same answer is zero.”

He expects vigorous debate. “You can see it set up in the ‘dot plot’ [of rate forecasts] the last time.”

Asked about Fed independence amid mounting political pressure on the central bank to cut rates, Bostic pointed to the need for consistency. The most effective central banks, he says, are clear and consistent in having a longer horizon. Shorter-term considerations can inject volatility into policy, “and that volatility ultimately will undermine the likelihood of a consistent foundation.”

None of this means Bostic has made up his mind yet about where to place his next set of dots. “In an uncertain world, I generally stay uncertain,” he says. “I’m going to be cautious in making any declarations in either direction.”

Write to Nicole Goodkind at nicole.goodkind@barrons.com