The US Federal Reserve Warns of the Consequences of Interest Rate Cuts on Inflation
Federal Reserve Bank president warns of risks of interest rate cuts on inflation in the US.
SUMMARY
Raphael Bostic, President of the Federal Reserve Bank of Atlanta, warned that cutting interest rates stimulates growth but may lead to increased inflation and worsening inflation expectations, with price pressures expected to continue until late 2026. He also noted weakness in the US labor market without a sharp decline. Meanwhile, President Trump announced his intention to appoint a new Federal Reserve chairman early next year, criticizing current chairman Jerome Powell.
KEY HIGHLIGHTS
- Interest rate cuts stimulate growth but increase inflation risks.
- Price pressures are not expected to subside before late 2026.
- Trump intends to appoint a new Federal Reserve chairman and criticizes Jerome Powell.
CORE SUBJECT
Consequences of interest rate cuts on inflation in the United States
The President of the Federal Reserve Bank of Atlanta, Raphael Bostic, warned that further cuts in interest rates stimulate economic growth but could expose the country to the risk of a new surge in inflation and its expectations. Bostic explained in an article published by the Federal Reserve Bank of Atlanta on Tuesday that an easing monetary policy or effectively entering an easing range will lead to further reductions in the federal funds rate. He added, "This policy carries risks that include exacerbating already high inflation levels and destabilizing inflation expectations among businesses and consumers." Bostic noted that the US labor market is experiencing some weakness but is not heading toward a sharp decline. He pointed out that there is no indication that price pressures will subside before mid to late 2026, at best. He predicted that the inflation rate will exceed 2.5 percent by the end of next year. In an early December press statement, US President Donald Trump said he intends to announce the new Federal Reserve Bank chairman at the beginning of next year. Trump renewed his criticisms of the current Federal Reserve chairman, Jerome Powell, whose term ends in May next year, describing him as "stubborn."
KEYWORDS
MENTIONED ENTITIES 4
Raphael Bostic
👤 Person_MalePresident of the Federal Reserve Bank of Atlanta
Federal Reserve Bank of Atlanta
🏛️ OrganizationAmerican central financial institution
Donald Trump
👤 Person_MaleFormer US President
Jerome Powell
👤 Person_MaleCurrent Federal Reserve Chairman