Fed Should Pause Rate Cuts or Risk Diminished Credibility Says Atlanta Fed’s Bostic

Atlanta Fed President Raphael Bostic says differences of opinion at the Fed reflect the unusually large range of possible economic outcomes rather than dysfunction. (Desiree Rios/Bloomberg)

Key Points

• Atlanta Federal Reserve President Raphael Bostic advocates pausing interest rate cuts due to persistent inflation risks and to maintain central bank credibility.
• Bostic notes that inflation has exceeded the Fed’s 2% target for nearly five years, with overall prices rising about 20% during that period.
• The unemployment rate increased to 4.6% from 4.4% in September, but Bostic views the labor market as cooling yet difficult to interpret.

Atlanta Federal Reserve President Raphael Bostic said on Tuesday that the Federal Reserve should pause further interest rate cuts, warning that inflation remains too high and that lowering borrowing costs too much could weaken the central bank’s credibility.

In an essay released Tuesday afternoon, Bostic said that moving monetary policy near accommodative territory—that is, lowering rates enough to stimulate economic growth—would further fuel inflation. Additional cuts, he wrote, risk “exacerbating already elevated inflation and untethering the inflation expectations of businesses and consumers.”

His remarks came after the Fed cut rates by a quarter percentage point at its December meeting, a cut Bostic said he didn’t support, and as policymakers debate whether inflation has largely been defeated or remains a persistent risk.

Bostic also weighed in on the latest jobs report, released Tuesday after a delay caused by the government shutdown. The data showed modest job growth in November, even as the unemployment rate ticked up to 4.6% from a previously recorded 4.4% in September**.**

Bostic described the report as mixed and said it didn’t materially change his outlook. Job gains of 64,000 were stronger than many expected following weakness in October, he said, while the unemployment rate rose but not in a way that suggested a sharp deterioration in the labor market.

“This is very much what I expected in terms of where the labor market is and didn’t really change my outlook that much,” Bostic said.

Bostic said in his essay that the labor market is cooling but remains difficult to interpret. Employment growth has slowed and unemployed workers are taking longer to find jobs, but labor-supply growth has also eased because of demographic trends and changes in immigration policy. As a result, he said, it is unclear whether recent labor market shifts reflect a cyclical slowdown that monetary policy can address or structural forces that it can’t.

Inflation, by contrast, presents a clearer risk, Bostic said. Inflation has exceeded the Fed’s 2% target for nearly five years, during which time overall prices have risen by about 20%. The most recent personal consumption expenditures data showed inflation still well above target, and Bostic said he expects inflation to remain above 2.5% even at the end of 2026. Inflation won’t likely return to target, he said, until 2028.

A major driver of that view, he said, is evidence from the Atlanta Fed’s business surveys. Companies expect higher input costs and say they plan to continue raising prices well into 2026 to protect profit margins. Those pressures, Bostic said, aren’t limited to firms directly affected by tariffs.

“If underlying inflationary forces linger for many months to come, I am concerned that the public and price setters will eventually doubt that the FOMC will hit the inflation target in any reasonable time frame,” Bostic wrote.

His comments come amid growing disagreement within the Fed over the inflation outlook. Fed governor Stephen Miran, an economic advisor to President Donald Trump who replaced Adriana Kugler at the Fed earlier this year, said Monday that inflation may be closer to 2% than headline figures suggest. Miran pointed to factors such as lagging housing data and other components that he argued distort the overall inflation picture.

Asked by Barron’s about Miran’s view, Bostic said he takes a different approach. “Month to month, you might see certain components contribute differently to the aggregate number, but over time, that aggregate number tends to sort of sustain,” he said.

Bostic added that he places greater weight on forward-looking signals from businesses about pricing behavior than on individual components of inflation data.

Bostic also pointed to technology, including artificial intelligence, as a factor complicating the labor market outlook. Firms are increasingly investing in AI and expect it to improve productivity, he said, although the timing and scale of such gains remain uncertain. Businesses currently tell the Atlanta Fed they expect technology to be largely jobs-neutral, while economists are more skeptical, he said.

Bostic said current differences of opinion at the Fed reflect the unusually large range of possible economic outcomes rather than dysfunction. He emphasized the importance of central-bank independence and said policymakers must be willing to withstand political pressure while focusing on the Fed’s long-term goals.

Bostic, who will step down as Atlanta Fed President early next year, said his views aren’t fixed. He said coming inflation and labor market data, including figures delayed by the shutdown, could change his assessment.

Bostic said he plans to spend more time after leaving the Fed on interests including birding and work related to financial literacy and economic development.

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