Although trade tensions have increased uncertainty for businesses, the U.S. economy continues to see solid growth and does not need an interest rate cut, Federal Reserve Bank of Atlanta President Raphael Bostic told CNBC on May 20.
In the interview, Bostic said he is "not expecting a rate cut to be imminent," pushing back against market expectations that the Fed will ease policy this year amid weaker growth and below-target inflation figures. Information gathered from businesses and elsewhere does not suggest the U.S. will see "significant weakness in the economy" that would warrant a Fed rate cut, Bostic said.
The downside risks could certainly materialize and push the Fed to cut rates, but there are other upside risks "that would suggest the economy might actually do better" than Fed officials expect, Bostic said. For example, a resolution of the China-U.S. trade talks could remove some uncertainty that businesses are facing and "could trigger a lot of investment and really heat up the economy quite quickly," he said.
"I'm open to moving either direction," Bostic told CNBC. "And right now, I'm not really tilted to the cut side as opposed to the hike side."
Fed officials have kept their benchmark federal funds rate unchanged this year after raising it four times in 2018, and some officials believe another rate cut this year may still be needed.
Bostic said his baseline outlook is that the U.S. economy will grow by about 2.25% to 2.5%, somewhat slower from 2018 but still above the economy's longer-run potential.
He also said he is not "super concerned" about recent trends in inflation, which has been running below the Fed's 2% goal. Fed Chairman Jerome Powell has attributed much of inflation's recent weakness to "transitory" factors that are expected to fade.
Inflation expectations have not drifted substantially below the Fed's 2% goal, Bostic said, adding that he does not view the Fed's "lack of hitting that target exactly or even going a little bit above as being a material failure."
As long as the Fed does not see inflation "running away" beyond the 2% target, officials do not have to change interest rates and will see that as a sign that the Fed's policy is essentially at a neutral level, where the central bank neither impedes growth nor gives the economy an extra push through lower rates.
"I'm really trying to keep an eye on what's happening in terms of pricing pressures to see if there is evidence to suggest that we might be providing some extra stimulus in our policy position," Bostic said.
Bostic is not a voter this year on the rate-setting Federal Open Market Committee and will rotate into a voting spot in 2021.