(Washington) An official of the American Federal Reserve (Fed) estimated Thursday that the reduction in rates could, if inflation continues to fall, begin before the third quarter which currently seems to him to be the right time to launch this movement.
“If the data (on inflation) continues to surprise on the downside, it will be possible for me to feel comfortable enough to advocate for normalization before the third quarter,” said Raphael Bostic, president of the Atlanta Fed, which in 2024 will have rotating voting rights within the Fed’s monetary policy committee, the FOMC.
“The evidence would have to be convincing,” he warned.
Since July, Fed rates have been between 5.25 and 5.50%.
Raphael Bostic, however, is banking, at this stage, on a start of decline in the third quarter: “I have integrated the unexpected progress in inflation and economic activity into my outlook, and I have thus brought forward the expected time frame to begin normalizing rates, from the fourth to the third quarter.”
He thus warns market players, more than half of whom anticipate a first drop during the meeting of March 19 and 20, according to the CME Group assessment, and believes that “we should let events continue to unfold before starting the standardization process.
He added that “premature rate cuts could trigger a surge in demand which could trigger upward pressure on prices”.
The president of the Atlanta Fed nevertheless agreed that “if we maintain too restrictive a policy for too long, we risk causing unnecessary damage to the labor market and the macroeconomy.”
And compare the rates to cooking Thanksgiving turkey, which “risks overcooking” if left “too long at full cooking temperature, because the turkey continues to cook even after it comes out of the oven.”
The next FOMC meeting will take place on January 30-31.
The inflation measure favored by the American central bank (Fed), and which it wants to reduce to 2%, the PCE index, will be published on January 26 for December. In November, it fell to its lowest since the start of 2021, to 2.6% over one year.
The CPI inflation index, on which pensions are indexed, started to rise again in December, to 3.4% over one year.