Fed's Bostic: Economy is 'losing momentum' but there is no sense of looming crash or panic from business leaders

By Greg Robb

Atlanta Fed president 'not quite prepared' to declare victory over inflation

There are signals that point to a broader slowdown of the economy but few business leaders are contemplating layoffs, Atlanta Fed President Raphael Bostic said on Wednesday.

"I do not sense a looming crash or panic among business contacts. However, the data and our grassroots feedback describe an economy and labor market losing momentum," Bostic said in an essay published on the regional bank's website.

Most business leaders report that demand is weakening and they are bracing for further softening, he said.

One upside of the slowdown in activity is that it is feeding a continuing, welcome decline in the pace of inflation, Bostic said.

He said his business contacts tell him that the ability to increase prices without repelling customers "has all but evaporated."

But Bostic said one lesson from history is that cutting rates could rekindle inflation.

"Right now, I am not quite prepared to declare victory over inflation," he said.

In one interesting note, Bostic said business leaders also worry that large layoffs might tarnish their reputation.

Bostic is a voting member of the Fed's interest-rate committee this year.

Fed Chair Jerome Powell said last month in Jackson Hole, Wyo. that the Fed is ready to cut interest rates for the first time in four years later this month.

Bostic said he would not predict what action the Fed might decide to take at their Sept. 17-18 meeting, saying he was trying to "outline the evolving economic and monetary policy environment" as he sees it.

Bostic repeated what many other Fed officials have said over the past month - that the "balance of risks" has shifted and officials are just as worried about looming economic weakness as they are about persistent high inflation.

The Fed has its benchmark interest rate in a range of 5.25%-5.5% for more than a year.

Traders in derivate markets expect the Fed will cut rates by 100 basis points by December to a range of 4.25%-4.5%. They see rates in a range of 3%-3.25% by next September.

-Greg Robb

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09-04-24 1000ET

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