Atlanta Federal Reserve President Raphael Bostic told CNBC Monday that he now leans toward only one rate cut in 2025.
Most experts see the economy slowing, retail sales falling and inflation declining toward the Federal Reserve’s acknowledged target of 2%. Limiting rate cuts to just one will help the central bank balance worries of a recession with potential upward pressures on inflation caused by tariffs, Bostic said.
The Federal Reserve had projected earlier this year the possibility of two quarter-point rate cuts in 2025. Bostic said Monday that the tariffs have so far been larger than expected and could lead to renewed inflation.
Bostic is among the 11 Federal Reserve bank presidents located around the country. Each year, a rotating group of four of those presidents join the eight permanent voting members of the Federal Open Market Committee to set interest rate policy. He is not currently a voting member of the committee, but he said he worries about inflation, mainly because the Fed is seeing expectations move in a “troublesome way” that will make it more difficult for the Fed to perform its dual mandates of supporting maximum employment while keeping inflation low.
Even though tariff levels have been reduced or put on hold during negotiations in recent months, Bostic said their levels are “definitely economically significant.”
“For me right now, I’m expecting it’s going to take a bit longer for that to sort out. … I’m leaning much more into one cut this year, because I think it will take time, and then we’ll sort of have to see,” Bostic said.
The threat of tariffs boosting inflation and uncertainty about unemployment levels moving forward have sparked worries about stagflation, an economic condition in which inflation and unemployment rise in tandem. That would make the Fed’s job increasingly difficult.
Goldman Sachs analysts also expect caution. TheStreet reports that, despite President Donald Trump announcing lower tariffs on China earlier this month, the investment bank’s analysts recently sent a note to clients saying they only expect one cut in 2025.
According to TheStreet, the announcement of lower tariff levels led Goldman Sachs to raise the 2025 growth forecast for the U.S. and to reduce the 12-month recession odds to 35%. Goldman Sachs expects three rate cuts in the future, but they have revised their forecast for the timing of the first rate cut to be in December of this year and not the previous target date of July.
Goldman Sachs economists also had expected the three rate cuts to happen at sequential meetings, but they now think it is more likely that the Fed will implement rate cuts at every other meeting.
