US Inflation Moving in the Right Direction, According to Atlanta Fed President

According to Atlanta Fed President Rafael Bostic, US inflation "appears to be shrinking", which could allow the Federal Reserve (Fed) to cut interest rates later this year.

Bostick noted that concerns about inflation stalling at high levels are easing as recent data show progress. Specifically, the percentage of goods and services growing at an annual rate of more than 5 percent has fallen below 20 percent, returning to pre-pandemic levels and mirroring trends seen in the rapid decline in inflation last year.

Despite these improvements, inflation remains “elevated,” with the price index for personal consumption expenditures (PCE) rising at a 2.7% annual rate in April versus the Fed’s target of 2%. Upcoming PCE inflation data for May, due on Friday, will provide additional insight.

Bostick expects that conditions will likely warrant a cut in the federal funds rate in the fourth quarter of this year.

He emphasized that it is important to exercise patience with the initial reduction to ensure that it takes place after a clear return to the 2% inflation target, which could potentially set off a series of declines.

While investors have been predicting a September rate cut with two quarter-percentage-point reductions by the end of the year, Bostick and many Fed policymakers currently foresee only one reduction.

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