Fed’s Bostic: even with rising productivity, the Fed needs to keep focus on inflation

• The US may be heading towards structurally higher unemployment, something the central bank cannot offset
• The Fed has maintained focus on economic outcomes across groups; this data is important in understanding labour market slack
• Hope that guardrails protecting Fed independence will be maintained
• Even with rising productivity, Fed needs to keep focus on inflation; responding to short-run issues could cause bigger problems over time
• Won’t know until we know how Warsh may respond to any pressure from Trump
• Fed chief nominee Warsh will need to build relationships with staff and colleagues at the central bank

Federal Reserve Bank of Atlanta President Raphael Bostic is emphasizing a patient approach to monetary policy. Bostic warned that the US may be drifting toward structurally higher unemployment, a fundamental shift that interest rate adjustments alone cannot fix. To navigate this, the Fed is closely monitoring “labour market slack” across diverse demographic groups. If unemployment is structural, aggressive rate cuts intended to “fix” it could inadvertently fuel inflation rather than create jobs.

Despite promising gains in productivity, Bostic remains a hawk on price stability. He cautioned against reacting too impulsively to short-term economic “noise,” suggesting that overreacting to immediate pressures could create compounded instability down the road. The primary mandate remains inflation, and the Fed must resist the urge to pivot prematurely.

With Kevin Warsh nominated as the next Fed Chair, the conversation has naturally turned to the central bank’s relationship with the executive branch. Bostic underscored the necessity of maintaining institutional guardrails to protect the Fed from political interference. Bostic noted that a successful tenure for Warsh will depend heavily on his ability to build relationships with the Fed’s staff and colleagues, ensuring that policy remains data-driven rather than politically motivated.

Bostic will retire when his term expires at the end of February.