Fed’s Bostic: The current degree of uncertainty has broadened considerably

The Atlanta Fed Pres. Bostic is speaking and says:

• The current degree of uncertainty has broadened considerably
• Tariffs are an aspect of uncertainty; challenging to figure out how to incorporate it
• Because things are changing so rapidly the most important thing to do is ask questions of business contacts, look at possible other outcomes
• Fed needs to keep a sense of how businesses and families might react to changing conditions
• Fed’s emphasis is still on inflation
• Fed needs to get to 2% for the credibility of the institution
• The US can support a much tighter labor market than was previously understood
• The outlook is for inflation to continue to fall
• Fed expects housing inflation to continue to fall
• Outlook is for job markets remain solid.
• Labor market right now is not a constraint on business
• Want to see what the 100 basis points of cuts last year translates to in the economy
• Uncertainty has been increasing, want to be cautious and not have policy leaned in a direction and have to switch
• Risk, uncertainty may be one reason long rates have been rising
• See nominal interest rate between 3% and 3.5%
• Tariffs are a type of a tax, and impacts depend on details, application, retaliation
• Crypto has grown, but is still a small portion of the financial system, not clear what it might substitute for
• Businesses asked about tariffs expect to pass the cost through

On inflation, the Core PCE inflation rose by 0.2% last week. Over the next three months, 0.4%, 0.3%, and 0.3% will roll out of the YoY equation. If the average is 0.2% for each month, that should see the YoY core PCE to fall to 2.4% from 2.8%. It is not 2%, but it is closer.

As an aside, the Atlanta Fed GDPNow growth estimate for Q1 rose to 3.9% from 2.9% (it’s initial estimate). In their own words:

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2025 is 3.9 percent on February 3, up from 2.9 percent on January 31. After recent releases from the Institute for Supply Management and the US Census Bureau, the nowcasts of first-quarter real personal consumption expenditures growth and real gross private domestic investment growth increased from 3.0 percent and 4.8 percent, respectively, to 4.1 percent and 6.5 percent.

The next GDPNow update is Wednesday, February 5. Please see the “Release Dates” tab below for a list of upcoming releases.

For Q4, the Atlanta Fed model forecast growth of 2.3% and that is where the initial advance reading of GDP came in. Well done Atlanta Fed.

This article was written by Greg Michalowski at www.forexlive.com.