The uncertain outlook for the U.S. economy: Atlanta Federal Reserve President advocates for maintaining current interest rates

According to the Zhitong Finance APP, the uncertainty surrounding the U.S. economy and inflation outlook means that the Federal Reserve will need to adopt a "wait-and-see" approach when adjusting interest rates in 2025. Raphael Bostic, President of the Atlanta Federal Reserve, stated on Monday that he prefers to keep current interest rates unchanged until the economic outlook becomes clearer.

Bostic noted that the U.S. economy and job market are currently performing robustly, but reducing inflation to the Federal Reserve's target of 2% still requires more effort. As of December 2023, the Federal Reserve's most closely watched inflation indicator—the Personal Consumption Expenditures (PCE) price index—rose 2.6% year-on-year, above the target level.

Bostic pointed out that while the unemployment rate is low, it has not led to runaway inflation, which differs from the general view of economists in the past. He emphasized that the Federal Reserve's primary focus is currently on inflation, rather than the job market, as the latter has reached a healthy level while the former has not met the target.

Bostic predicts that the inflation rate will continue to decline towards 2% by 2025, but it will not be a straight-line decrease; rather, it will be a "twisted" or "volatile" trend. He specifically mentioned the impact of housing prices on inflation, stating that housing prices have pushed up overall inflation levels in recent quarters, but may ease in the future.

However, the decline in housing inflation is a slow process, as rental contracts are typically updated every 12 months, and the frequency of home transactions is lower, meaning the impact of housing prices on inflation data will gradually become apparent.

Bostic has served as President of the Atlanta Federal Reserve since 2017 and will participate in policy-making as a voting member of the Federal Open Market Committee (FOMC) in 2024 (his next voting rights will be in 2027). Currently, the target range for the Federal Reserve's federal funds rate is 4.25% - 4.5%, down from 5.25% - 5.5% before the September 2024 meeting. Last year, the Federal Reserve cut rates three times in a row but paused rate cuts in January 2025.

He emphasized that the Federal Reserve should not adjust policies prematurely based on assumptions about the future trajectory of the economy, as this could lead to a rapid reversal and create policy uncertainty.

Additionally, the Federal Reserve's long-term goal is to adjust interest rates to a "neutral rate," which neither stimulates economic growth nor suppresses economic activity. Bostic estimates this level to be between 3% - 3.5%, but the specific pace of adjustments will depend on changes in economic data.

In the context of increasing global economic uncertainty, Bostic stressed that the Federal Reserve needs to consider a broader range of information when formulating policies, including not only past economic data but also economists' forecasts, market surveys, and corporate feedback.

The next FOMC meeting will be held on March 18-19, during which officials will have an additional two months of inflation and employment data to analyze. The market expects an approximately 85% probability that the Federal Reserve will keep interest rates unchanged, while the latest FOMC forecasts and market pricing indicate that the Federal Reserve may cut rates by a total of 50 basis points in 2025