Atlanta Federal Reserve Chairman warns of inflationary stickiness and opposes cutting interest rates too fast

The Zhitong Finance App learned that US Federal Reserve Chairman Bostic said that Federal Reserve policy makers should still focus on controlling inflation and warned that high price pressure may continue until next year, or even longer.

Bostic revealed in an article published on Tuesday that at the December 9-10 Federal Open Market Committee (FOMC) meeting, he not only advocated keeping interest rates unchanged, but also proposed keeping interest rates levels until 2026. He pointed out that many “tailwind factors” in the current economy may continue to exert upward pressure on inflation. Although Bostic was not a voting member of the FOMC this year, at the December meeting, most voting officials finally supported cutting interest rates by 25 basis points.

“After a comprehensive balance of factors, I still believe that compared to changes in the labor market, price stability is a more clear and urgent risk.” Bostic wrote. He said that there is little indication that inflationary pressure will subside significantly before mid to late 2026, and the inflation rate is expected to remain above 2.5% even by the end of 2026.

Currently, there are clear differences of opinion within the Federal Reserve on the interest rate path. Last week's decision to cut interest rates was the third time this year, but it was opposed by three officials, including two regional Federal Reserve chairmen who advocated keeping interest rates unchanged, and Governor Milan's belief that interest rates should be cut by 50 basis points in one go. Furthermore, six other officials hinted in their latest interest rate forecasts that they do not support this rate cut.

According to the latest bitmap, the median forecast shows that Fed officials expect to cut interest rates only once next year. However, this forecast was made before delayed economic data was released on Tuesday. The data showed that the US unemployment rate had risen to 4.6% in November. Compared to this, financial market expectations are more aggressive. Futures pricing shows that investors are betting that interest rates will be cut by 25 basis points twice next year.

Bostic pointed out that there were many objections at last week's meeting, which just shows that this policy decision was a “very close choice.” He acknowledged that demand for labor was cooling down, but did not believe that a “serious labor market downturn” was the most likely scenario. He said that some companies expanded too fast after the pandemic and are now returning to their employment scale, while others are replacing some jobs through technical means. These are all structural changes and cannot be solved by interest rate adjustments alone.

On the issue of inflation, Bostic quoted the Atlanta Federal Reserve's corporate survey as saying that many companies expect “to continue to raise prices until at least 2026,” and inflationary pressure is not limited to industries directly affected by tariffs. He also warned that “supercore” service inflation without housing is still too high, which may cause the overall inflation rate to hover close to 3% for a long time.

“If the potential inflationary momentum persists in the coming months, I'm worried that the public and price makers will eventually wonder if the FOMC will be able to meet the inflation target within a reasonable period of time.” Bostic said.

In terms of personal whereabouts, Bostic announced last month that he will retire after his term expires at the end of February this year. According to regulations, the chairmen of the 12 regional banks all serve a five-year term and must be re-appointed by the Federal Reserve Board of Governors. The Board of Governors of the Federal Reserve unanimously approved the re-election of the remaining 11 regional Federal Reserve presidents last week, while the Atlanta Federal Reserve Board of Directors announced this Monday that it has officially begun the process of selecting Bostic's successor.

In response to speculation about whether his retirement was related to the evaluation pressure during the reappointment process, Bostic responded, “This is my own decision, and it is entirely a personal choice.”