In an interview with BBC News, Raphael Bostic, President of the Atlanta Federal Reserve and a key member of the Federal Reserve, cautioned against rushing to cut interest rates, citing a gradual decline in inflation. Bostic emphasized the need to maintain interest rates at a “restrictive level,” suggesting that any easing might not occur until the end of 2024.
The prospect of delayed interest rate cuts in the United States has had ripple effects across the global economy, influencing government borrowing costs, including those in the UK. Earlier expectations of multiple rate cuts in the US and Europe have shifted as a result.
Chancellor Jeremy Hunt highlighted the interconnectedness of the US and UK economies, acknowledging the impact of US inflation surpassing expectations on market yields in the UK. Changes in government debt markets can subsequently affect mortgage and business borrowing costs, though Bank of England Governor Andrew Bailey noted differences in the inflationary patterns between the two countries.
Bostic, who holds voting power in determining US interest rates, underscored the robust performance of the American economy, citing strong job creation and resilience. However, he expressed surprise at the economy’s strength, attributing higher-than-expected inflation to its vitality.
Advocating for patience, Bostic cautioned against hasty rate cuts, particularly given the positive trends in employment. He also raised concerns about the escalating US government debt, calling for a dialogue on safeguarding confidence in the government’s creditworthiness.
Additionally, Bostic addressed the role of the US dollar as the world’s primary reserve currency, affirming its current stability while urging proactive measures to ensure its continued safety. Drawing an analogy to wearing seatbelts for protection during travel, he emphasized the importance of collective efforts to preserve financial stability.
