Raphael Bostic, a policymaker at the Federal Reserve, expects only one interest rate cut this year due to ongoing economic uncertainty. He predicts economic growth will be between 0.5% and 1% and does not foresee a recession. Bostic points out that inflation pressures, particularly from tariffs, may lead to additional actions. He believes that the recent easing of US-China trade tensions slightly changes his outlook.

A Hawkish Stance

Bostic has generally held a hawkish view but is not a voting member this year. Market participants may need to reassess inflation risks and expectations regarding rate cuts. His statement reminds us that, despite many expecting several rate cuts, the central bank is not fully confident that inflation is under control. With expected growth staying below long-term averages and no recession in sight, Bostic keeps the Fed cautious, suggesting that policymakers are closely monitoring price data and may delay further action longer than markets anticipate. The ongoing concern about price pressures from tariffs adds complexity. Even as US-China tensions ease, the impact of earlier measures could still affect inflation. This creates persistent inflation conditions that temporary geopolitical improvements may not resolve.

Conditional Rate Cut Projection

What’s notable is Bostic’s expectation of just one rate cut in 2024, which is conditional. It depends on upcoming reports and whether current efforts successfully reduce core inflation. This means rates may stay high longer, with policies relying more on actual data than on sentiment. As we look ahead, we should approach rate cut assumptions carefully. Betting on aggressive cuts based solely on past trends exposes us to risk, especially if inflation indicators don’t drop enough or if growth data improves. Markets might need to take things slowly for a while. For example, if job figures remain strong or if consumer spending holds steady, policymakers could be patient, arguing that household demand hasn’t weakened as needed. Strong economic data might quickly undermine expectations for future rate cuts. Although Bostic isn’t voting now, his comments reflect broader central bank thinking, especially since his views contrast sharply with current market expectations. This prompts us to evaluate whether those assumptions are still valid. In the coming weeks, we should avoid making trades based only on hopes for quicker rate cuts. Instead, we should seek clearer confirmation across a range of data, including employment, consumer behavior, and supply metrics. If these indicators all decline simultaneously, central bank support may come sooner. Until then, the focus should be on the data. Create your live VT Markets account and start trading now.

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