The US economy is now near normal inflation and unemployment rates, and the Federal Reserve needs to normalize monetary policy, Atlanta Federal Reserve President Raphael Bostic said on Monday in comments that indicated a willingness to cut interest rates quickly in the coming months.
"Progress in controlling inflation and a slowdown in the labor market have emerged faster than expected at the start of the summer," Bostic said in a statement prepared to be delivered to the European Center for Economic and Financial Affairs. "At this point, I envision normalizing monetary policy earlier than I would have thought appropriate a few months ago."
"Normalizing" refers to the return of the Fed's policy interest rate to a level that discourages or discourages investment and spending, a level estimated to be slightly below the 4.75% to 5% range set last week after the Fed began easing policy by half a point.
Bostic said that the disagreement over the exact "neutral" interest rate doesn't really matter as long as rates are this high, with risks balanced between inflation and the unemployment rate, which currently stands at 4.2%. He supported the half-point cut approved last week as a compromise between the fact that inflation remains half a point above the Fed's 2% target, with housing prices still rising faster than expected, and a sense that the economy and job market are slowing.
Bostic earlier in the year expected a less aggressive rate of reduction and a slower start, and said the larger reduction last week "does not set the pace for further steps" that depend on the data received.
However, he said, "Inflation has declined faster than expected, and the latest data reinforces confidence that the US economy is indeed on a sustainable path to return to price stability."
Meanwhile, firms are taking a more cautious approach to hiring, he said, although they are not yet at the point of laying off workers.
