Federal Reserve Bank of Atlanta President Raphael Bostic discusses the outlook for interest rates and the economic impact of tariffs. Speaking with Mike McKee on Bloomberg Television, Bostic says he expects one Fed rate cut this year.
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Questions asked in this interview
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0:00And I'm not talking about the judgment of market people, but do you think that market rates are essentially where they should be, given where your rates are at this point?
1:13Does it worry you that they are not pricing you more of a credit risk to the United States given that we're no longer triple-A?
2:23Well, if they are higher and stay higher, as they are right now, does that affect your calculation of what you have to do?
3:19Do they tell you to separate out tariff effects from just secular movements in both sides of your mandate?
4:37Does that mean that any kind of Fed action is going to be off the table until at least September?
6:37Well, given that no hands are going up at this point, when we get an SEP from the Fed or a dot plot or your argument for one cut this year, should we take any of that seriously?
7:31How is that going to affect the Atlanta Fed and what kind of divisions are affected?
8:18Is this in any way a response to those cuts that are going through Washington?
8:59Are you assuming that that's going to go away in the new framework?
10:01... tomorrow, as you look at the framework, you're talking about the policy, the way you look at policy, but what about an operational change, like to demand-driven reserve levels as opposed to ample reserves, something broader for the Fed?
You've been on Bloomberg's air a lot and you were on another network this morning. So we're going to stipulate that things are uncertain in the economy and you don't exactly know where policy is going to be. And let me ask you a couple of things. In different areas, monetary policy works through the markets. And I'm not talking about the judgment of market people, but do you think that market rates are essentially where they should be, given where your rates are at this point? That's all.
First of all, good to have you here. I'm really always happy to speak on Bloomberg. What I would say is this. The market is trying to process a lot at this point. And where our rates are, I think are mildly restrictive in the marketplace, trying to get inflation back to our 2% target because it's been too high for too long. I think the rest of it is really about perceptions of risk in the marketplace and, you know, uncertainty and the volatility that might be present in the market, I think leads to there being an extra premium on it. And so, you know, the market will decide whether what its price needs to be. But it doesn't surprise me very much that we see it at a higher level relative to the things that we've done with our rate in the last year.
Well, we've got the downgrade now that pushed rates up early this morning and overnight, and then it started to fade back a bit. Same thing that sort of happened after Fitch and S&P did their downgrades. Does it worry you that they are not pricing you more of a credit risk to the United States given that we're no longer triple-A?
Well, you'll have to talk to the readers about sort of how they interpret these things. What I would say is this: so much of our economy is based on faith that we will deliver on the things that we say that we've promised for the future. When you start to see the markets waver a little bit, I think people are asking the question, do we still have that same level of faith? I think the sign that rates have started to come back down and the markets are sort of returning back to a normal status suggests that they think there is that likelihood moving forward. And we'll just have to see where it goes. I mean, I always want to make sure I understand what the price of credit and debt is. But, you know, the markets will make a determination on that on their own.
Well, it depends. You know, one of the things that will be interesting to see is how businesses and consumers respond to the environment. What I'll say is, because of the word that you said at the very beginning, uncertainty, we know that many businesses and many families are really holding tight to see sort of how this all sorts out. And we'll just have to see how the changes in pricing in bond markets and other markets translates into different strategies moving forward. I do think the spaces that we have right now is one reason why I think it's appropriate for us to be waiting on our policy as well, and we'll just have to see how this all plays out. I'm hopeful that as we get through the summer, we start to get more clarity on exactly where things are going to settle out and trade policy and other factors.
Well, I know you've got your people working on this, but is it going to be hard, do you think? Do they tell you to separate out tariff effects from just secular movements in both sides of your mandate?
Well, I'm not sure you can really do it so cleanly. What I would say is when we talk to businesses, what they tell us is they've got a plan based on a projection of where things would be. Tariffs have evolved over time, and it looks like some of those levels are going to be higher. And we have to just see what they decide needs to change in those plans. Today, they're telling us that if tariffs don't get too high, that they can sustain with the level of employment that they have and they don't necessarily will have to turn to laying people off. But they say, you know, we don't know. And so we're going to wait and we're just going to watch. And on the inflationary side as well. All the models say that the level of inflation that we have is going to put upward pressure on prices. So we're just going to have to see what the negotiations turn out to be. And then at that point, we'll have a better sense of how much we're going to have to do on our side to keep both the employment mandate and the stable prices mandate close to our targets.
But you said this morning you thought it would be 3 to 6 months before you get clarity. Does that mean that any kind of Fed action is going to be off the table until at least September?
Well, okay. There's an if and then a then. I would say, look, if it takes negotiations a longer time to settle things out, we have another 90 days on China, for example, that starts to push much further into the summer, in which case we won't actually know what the true effects are going to be for the several months after that. If that's how it plays out, then that's then. Sure. I think and right now I would say in my SEP, I have one cut only for this year because I think this is going to take longer to resolve than it might have otherwise. But things could go faster. It could be the case that these negotiations bear a lot of fruit. We know what the numbers are and they perhaps come in lower than people are marketing. In that case, we may be able to pull forward some of our actions because there may not be as much that we need to do in terms of managing the price level.
