Economy Matters

The Federal Open Market Committee (FOMC) voted July 30 to hold interest rates steady, citing indications that economic growth has moderated in the first half of the year and uncertainty remains elevated.

Atlanta Fed president Raphael Bostic said in an August 1 interview with CNBC that the July jobs report issued that morning by the Labor Department, which included revisions to previous months that showed the labor market had slowed more than previously reported, is one of many factors he will consider as he contemplates the appropriate path of monetary policy going forward. The Fed sets the short-term interest rate to fulfill its congressional mandate to induce price stability and maximum employment.

Bostic said inflation was his main concern going into the July committee meeting, given that inflation was not moving toward the Fed's target of 2 percent. In its quest to tamp down inflation, the FOMC has not lowered the fed funds rate this year. Although the jobs report is of note, Bostic said, the question on his mind is whether this is a one-time move or a trend that will continue over time.

"There is still a lot of strength underlying the labor market. We do see that wages are not collapsing," Bostic said. "In many ways, this is about slowing down."

Bostic said he and his team of researchers at the Atlanta Fed will pore over the new jobs report and other incoming data before the September 16–17 FOMC meeting. Bostic told CNBC in May he was "leaning much more into one rate cut this year." The new jobs report prompts him to think "it's appropriate to rethink everything" as well as consider other data points that come in before the next meeting.

"If it looks like the labor market is weakening in a sustained way, such that the risks on that side have increased to be greater than risks on the inflation side, then I'd be open to increasing the number of cuts," Bostic said. "Today, I don't see that. Inflation is still further from its target than employment is from its. But we'll have to watch and see how things evolve over the next several months."

The FOMC vote to maintain the rate was 9-2-1, with Governor Adriana D. Kugler listed as "absent and not voting." (Kugler later announced her resignation from the Federal Reserve Board, effective August 8.) The dissenting votes were cast by governors Michelle W. Bowman and Christopher J. Waller, both of whom favored a quarter-point drop in the federal funds rate. Both Bowman and Waller issued statements on August 1 saying a rate reduction is appropriate to support the labor market.

The FOMC's decision comes as the Atlanta Fed's business contacts throughout the Southeast reported little change in the overall economy since spring. They continue to navigate ongoing uncertainty over dimensions ranging from tariffs to geopolitics to regulatory policy, according to the July 16 edition of the Beige Book, the Fed's national and district-specific overview of descriptive, anecdotal information about the economy. Among the metrics, contacts reported labor markets were generally stable and wage pressures were muted, while loan and deposit growth was relatively unchanged, according to comments gathered from May 24 through July 7.

Bostic said the July jobs report might indicate the "economy and labor market is weakening more than, certainly, what we're seeing in the Sixth District," comprising Alabama, Florida, Georgia, and parts of Louisiana, Mississippi, and Tennessee. "That [weakening] does also suggest that the risks to the employment side of the mandate are, maybe, coming more into balance with those in inflation, and that's something that I'll really have to look at as I think about the appropriate path for policy."

Besides its vote to leave its benchmark policy rate unchanged at 4-1/4 to 4-1/2 percent, the FOMC maintained the reduction in the monthly redemption cap on Treasury securities at $5 billion, the rate approved at the March meeting.

Regarding the FOMC's plans for adjusting the fed funds rate, Fed chair Jerome Powell downplayed the FOMC's signaling of two possible rate cuts this year in the Summary of Economic Projections (SEP) issued June 18. Powell emphasized the FOMC's focus on incoming data to inform its decisions. In his press conference following the July 30 FOMC meeting, Powell observed, "I couldn't point to it [the SEP] six weeks later as expressing people's thoughts." The SEP is widely watched because it contains the projections by all 19 FOMC participants of the most likely outcomes for growth in the real gross domestic product, unemployment, and inflation in both short-term and long-run scenarios. SEPs are issued quarterly, and the next one is due for release September 17.

Because of the rotation schedule among voting members of the FOMC, Bostic does not currently cast a vote on policy moves. However, he participates in FOMC deliberations and provides information about the southeastern economy and contributes to the Committee's assessment of the economy and policy options. The Atlanta Fed president is slated to have a vote in 2027.

Read or watch Bostic's July 3 presentation to the Institute for Monetary and Financial Stability, in Frankfurt, Germany,"The Dual Mandate and the Primacy of Inflation Expectations."

Read Bostic's message delivered February 20, "Uncertainty Calls for Caution, Humility in Policymaking," and listen to his January 7 podcast episode,"'There's Still a Lot of Uncertainty': Atlanta Fed President Bostic Looks Back on 2024."

Read the Federal Reserve's FOMC statement, issued July 30.

David Pendered

Staff writer for Economy Matters