The US Federal Reserve’s decision to cut interest rates by half a percentage-point was “an appropriate and necessary first step,” given progress on reducing inflation, a senior bank official said Monday.
The central bank surprised some analysts by choosing a more aggressive rate cut last Wednesday, as the Fed looked to support the cooling US labor market after making progress toward the bank’s long-term inflation target of two percent.
The US central bank has a dual mandate to act independently of Congress in tackling both inflation and employment.
Among the policymakers who joined the Fed’s 11-to-1 vote to cut its key lending rate by 50 basis points was Raphael Bostic, the president of the Atlanta Fed.
“Commencing the process of reducing the policy rate is an appropriate and necessary first step in recalibrating monetary policy in light of evolving economic conditions,” Bostic told the European Economics & Financial Centre in London on Monday, speaking from Atlanta.
“In my judgment, we have made sufficient progress on inflation, and the labor market has exhibited enough cooling, that the time has come to shift the direction of monetary policy,” added Bostic, one of 12 voting members on the Fed’s 19-person rate-setting committee this year.
Bostic said he backed a larger cut because “progress on inflation and the cooling of the labor market have emerged much more quickly than I imagined at the beginning of the summer.”
He added that the Fed’s decision leaves it in a good position, regardless of whether inflation continues to ease toward the bank’s two percent target.
“In my view, the 50-basis-point adjustment at the meeting last week positions us well should the risks to our mandates turn out to be less balanced than I am thinking,” he said, adding that policy remained “restrictive.”
“If my optimism about inflation is unsatisfied, then the Committee can slow or even halt the pace of further reductions,” he said.
On the other hand, if the labor markets turn out to be less healthy than they appear at this moment, “the half percentage-point reduction puts us in a better position to adjust than a more modest cut would have,” he added.
Looking ahead, Bostic said the Fed was not in a “mad dash” to lower rates, adding that he supported moving patiently given uncertainty that exists in the world’s largest economy.
