Fed's Bostic On Rate Cuts: 'Directionality Is Very Much Up In The Air' Amid Trump's Economic Shifts, Tariffs

Federal Reserve officials may need to wait until summer before gaining enough clarity to adjust interest rates, as policy changes under the Trump administration create significant economic uncertainty, Atlanta Federal Reserve Bank President Raphael Bostic said Thursday.

What Happened: “There’s a lot of transition that’s happening, and in the mid of this transition it’s hard to know exactly where things are going to land,” Bostic said at an event hosted by the Birmingham Business Journal, according to Reuters. “I’d be surprised if we got a lot of clarity before the late spring or into the summer. We’ll have to just sort of really be patient.”

The Fed, which cut rates by a full percentage point in 2024, currently maintains its benchmark rate in the 4.25%-4.50% range. Policymakers are expected to hold rates steady at their upcoming Mar 18-19 meeting.

Bostic cited multiple factors contributing to what he called “incredible flux” in the economy, including tariffs, trade policy, inflation volatility, declining consumer sentiment, immigration policy impacts on labor markets, energy policy, tax changes, federal spending, and geopolitical tensions.

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Why It Matters: The comments come as President Donald Trump has introduced a series of tariff actions since his January inauguration, including plans for 25% tariffs on Canadian and Mexican imports and 20% on Chinese goods.

These moves have contributed to market expectations for earlier and additional Fed rate cuts, with futures contracts now pricing in a likely May reduction followed by two more cuts this year.

Recent economic data presents a mixed picture. The Fed’s Beige Book released Wednesday showed slight overall economic growth since mid-January, with decreased consumer spending and increased price sensitivity for discretionary items, particularly among lower-income consumers.

The PCE price index, the Fed’s preferred inflation gauge, grew 2.5% year-over-year in January, marking its first slowdown in four months but still above the Fed’s 2% target.

“If I was waiting before to see and get a clear signal about where the economy is going to go, I’m definitely waiting now, because the directionality is very much up in the air,” Bostic said, emphasizing that tariffs will eventually mean higher prices for American households already struggling with elevated costs.

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.