Atlanta Fed President Raphael Boucek said his estimates for when interest rate cuts will begin could accelerate, telling Yahoo Finance that September or November is “definitely in the cards” and that an initial 25 basis point cut “may be the most appropriate way forward.”
“For most of this year, my view and my expectation has been that we will do one cut this year and that will be in the fourth quarter,” he said in an interview Friday at the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming.
“Inflation has fallen faster than I expected. Labor markets have weakened significantly… All of this suggests to me that it is appropriate to bring forward the timing of our interest rate action.”
So, “opening up to something in the third quarter — September or November — is definitely possible.”
The central bank policymaker made his comments after Federal Reserve Chairman Jerome Powell said in a speech in Jackson Hole that “the time has come to adjust policy,” giving markets a clear signal that lower interest rates are coming.
Powell’s speech comes just three weeks before the Federal Reserve’s September 17-18 meeting, which is expected to see the central bank announce its first interest rate cut since 2020.
Read more: Federal Funds Rate: What It Is and How It Affects You
But Powell did not comment on whether the first cut would be 25 basis points or 50 and whether September was actually the starting point, saying that “the timing and pace of rate cuts will depend on incoming data, evolving expectations, and the balance of risks.”
One Fed policymaker, Philadelphia Fed President Patrick Harker, told Yahoo Finance in a separate interview on Friday that he expects the central bank to start with a 25 basis point cut, and that it would be open to a larger cut if the labor market suddenly deteriorates.
“Starting at 25 makes a lot of sense to me,” Harker said.
A 25 basis point move “may be the most appropriate way forward” if inflation remains consistent with the slowing trends of the past few months, Bousik added.
“I’m trying to wait and see what happens.”
He, like other policymakers, is closely watching the labor market as business conditions slow.
Companies are not as eager to hire as they were a year ago, but Boussek said he has not heard of any significant layoffs in the future. Wages are still above the rate of inflation, he said.
Asked if the labor market could cool without pushing the economy into recession, he said, “It’s possible, and we’ll have to see if it’s possible.”
But recession is “not in my forecast.”
He acknowledged that if companies did start laying off workers, it could change the Fed’s calculations: “That’s a different scenario and would require a different policy response.”
Market bets that a bigger move will come in September were up Friday morning. Markets were pricing in a 34.5% chance of the Fed cutting rates by 50 basis points by the end of its September meeting, up from about 24% the day before. According to CME’s FedWatch tool.
Former Cleveland Fed President Loretta Mester, who resigned from the central bank’s rate-setting committee less than two months ago, told Yahoo Finance in an interview that she doesn’t want to start with 50 basis points because “that really suggests the Fed is behind the curve and I don’t think the Fed is.”
“I think the reasonable basis would be to do 25,” she added.
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