Exclusive: Fed should wait on rate cuts with price hikes expected, Bostic says
ATLANTA, June 24 (Reuters) - The Federal Reserve need not cut interest rates with companies planning to raise prices later this year in response to higher import taxes and with the job market still stable, Atlanta Fed President Raphael Bostic told Reuters.
"I think we have some space and time" to watch how the tariff and other policy debates evolve, said Bostic in an interview at his office in downtown Atlanta. He sees the Fed only needing to approve a single quarter-point rate cut late in 2025, based on his view that economic growth will fall to perhaps 1.1% this year and inflation returning to nearly 3% by year's end.
Though some Fed officials say rates could fall as soon as July, and U.S. President Donald Trump has been criticizing tight Fed monetary policy, Bostic said the job market shows little sign of fading, while inflation remains a risk.
"I'm more concerned about what happens if we don't get to our 2% mandate. Because of that I'm willing to stay in this restrictive posture for longer just to be absolutely sure," said Bostic, referring to the 4.25% to 4.5% policy interest rate the Fed has maintained since December to contain inflation.
"I would see the last quarter (of the year) is sort of when I would expect we would know enough to move."
Fed policy will be the focus of congressional hearings this week, with Fed Chair Jerome Powell beginning two days of testimony Tuesday morning before the House Financial Services Committee.
Trump has called for immediate rate cuts, but uncertainty around his trade and other policies has pushed the central bank onto a cautious footing that may be further amplified by new risks around the conflict with Iran.
After a turbulent few months in which recession risk rose alongside the Trump administration's plans for historically high import tariffs, then fell as Trump backed off, Bostic said business sentiment has improved recently - something Powell alluded to in a press conference last week.
"Business leaders have lowered the probability of the doomsday scenario" in which tariffs and prices skyrocket and demand wanes, Bostic said. Business executives, he said, have told him they are confident about finding strategies to deal with the tariff levels they expect they are most likely to face.
Those strategies include raising prices, perhaps in several steps over time, as companies respond to their competitors, negotiate with suppliers and monitor how consumers adapt, he noted.
"They tell me 'I'm pretty sure I am going to have to raise my prices. The question is not whether but when,'" Bostic said, citing a major reason he remains reluctant to cut rates until more is known.
Bostic's single anticipated cut this year is less than the two quarter-point cuts at the median of projections issued last week by the Fed's 19 policymakers.
Bostic is not a voter this year on interest rates, but like all Fed officials he participates in Federal Open Market Committee debates about appropriate policy.
Since December that has meant holding the benchmark overnight rate steady as the Trump administration moved to reorder global trade by imposing stiff tariffs on imported goods.
Some of those levies are already in place, but have yet to significantly affect the pace of price increases that are near but still above the central bank's 2% target. In recent days, Fed Governors Chris Waller and Michelle Bowman, who is also the U.S. central bank board's vice chair for supervision, said recent inflation data has been mild enough to justify a rate cut as soon as July.
But much remains unknown ahead of a July 9 deadline for the imposition of U.S. tariffs as high as 50% on European Union nations and various levies across much of the rest of the world.
Bostic said many businesses in his southern Fed district say they have held the line on prices so far, but have nearly exhausted the tools at hand to keep doing so.
"More and more businesses are telling me that in their sector, the strategies that they had to forbear are increasingly running their course," Bostic said. "They have worked but they have run their course and they can't keep doing it."
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Unlike other digital asset classes, if a stablecoin issuer does not provide sufficient transparency regarding the reserves backing the stablecoin, it can be difficult to verify the nature and provenance of those assets or even whether the stablecoin is backed at all. An unscrupulous stablecoin issuer could use this lack of transparency to facilitate the laundering of illicitly obtained digital assets or engage in fraud by issuing stablecoins that are not fully backed by the assets the issuer claims to be holding as reserves. The growing popularity and versatility of stablecoins — and the increased governmental focus as evidenced by the GENIUS and STABLE Acts — mean firms that deal in stablecoins need to closely evaluate their compliance obligations. 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Traditional financial institutions adding stablecoin-related services, such as stablecoin custody or cross-border settlement with other financial institutions, may be able to leverage their existing CIP processes. Stablecoin issuers not presently subject to the CIP rule will need to consider how to create effective procedures for collecting and verifying know-your-customer (KYC) information, particularly if they become subject to affirmative CIP requirements. Critically, CIP requirements do not extend to third parties, such as the issuer of a stablecoin that an institution custodies for its customers. However, financial institutions should consider conducting risk-based diligence on third parties to align with regulators' expectations. Transaction monitoring: All U.S. financial institutions have an obligation to report suspicious activity to FinCEN, including cash transactions exceeding $10,000 and suspicious transactions exceeding $2,000. 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A host of vendors offer sophisticated transaction monitoring software that financial institutions like banks have used for years. Specialist vendors in the digital asset space now offer advanced blockchain analytics tools designed to automatically detect patterns of suspicious activity, send real-time alerts, enable in-depth investigations and integrate into compliance team workflows. These tools leverage the public transaction ledgers on which digital asset transactions are recorded and other information gathered by the vendors. Traditional and nontraditional financial institutions offering stablecoin-related services should consider whether blockchain analytics could enhance their transaction monitoring program in line with a risk-based approach to AML/CFT compliance. Travel rule: The so-called Travel Rule generally requires that, for transmittals of funds of $3,000 or more, the sender's financial institution ensure that certain information regarding the transmittal, the sender and the beneficiary be included in the transmittal order at the time it is sent to the receiving institution. If the receiving institution is acting as an intermediary in the flow of funds, the receiving institution must include the same information in the transmittal order that it sends to the next receiving institution in the chain. The Travel Rule presents novel challenges for digital asset transactions, including those involving stablecoins, as blockchains are not designed to transmit the type of information the Travel Rule requires to accompany the transmittal. 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Drylewski is a regular contributing columnist on blockchain and digital assets for Reuters Legal News and Westlaw Today.
