The head of the regional Federal Reserve Bank says the economy heading into the new year is on solid footing. However, Federal Reserve Bank of Atlanta Pres. Raphael Bostic is less certain about continuing to lower interest rates.
Central bankers have cut their target interest rate twice since September. Bostic’s region includes Florida. He is a voting member this year of the Fed’s interest rate setting Open Market Committee and he supported both rate cuts.
“ I did so because the risk of inflation remaining troublesome has fallen, and the risk that employment might become a problem spot has increased,” he said in a video message accompanying his quarterly economic outlook essay.
Bostic described both inflation and the job market as “broadly healthy.”
READ MORE: Regional Fed president explains why he voted for lowering interest rate
Consumer inflation has fallen considerably since hitting a 40-year high in the summer of 2022 when it was at 8.9%. Inflation in South Florida was even worse reaching over 10%. The Fed embarked on an effort to bring down the pace of inflation by beginning to raise interest rates in Feb. 2022. The bank’s target borrowing rate hit a two-decade high in 2023. The Fed kept it there for a year before cutting rates this fall as inflation slowed.
In October, the national inflation rate was 2.6%, slightly higher than the Federal Reserve’s official target of 2%. South Florida’s Consumer Price Index was 2.7% the same month, marking the slowest regional inflation rate since the winter of 2021.
Despite slower price hikes, Bostic was careful not to declare victory. He still thinks inflation will return to a much more comfortable level toward the bank’s target, but he cautioned there are pockets of more stubborn price hikes, especially in housing and some services. So, there’s no guarantee that the Fed will continue to lower interest rates.
“A continuation of the positive string of macroeconomic events is not assured, as uncertainties surround both the labor market and the continued decline of inflation towards the committee's 2 percent goal.,” he said.
Despite the Fed’s efforts to bring down borrowing costs, market interest rates have not declined. The average 30-year fixed rate mortgage is 6.8%, according to data from Freddie Mac. That same mortgage would have cost borrowers 6% in late September.
The lack of a commiserate response by bond market interest rates to the Federal Reserve’s efforts to lower rates means consumer borrowing costs remain elevated for home mortgages, auto loans and credit card balances.
The Fed’s next interest rate setting meeting is Dec. 17-18.
Regional Federal Reserve bank leaders rotate their participation on the bank’s interest rate committee. Bostic was a voting member this year. He will be an alternate member of the group next year.
