Fed’s Bostic: Moody’s downgrade will cut across economics, financial markets

• Moody’s downgrade will cut across economics, financial markets.
• Downgrade will have implications for cost of capital, could ripple through economy.
• Will have to wait and see about impact of downgrade on demand for US debt.
• The Fed will have to determine how the downgrade effects an outlook that is already in flux.
• It’s unclear if consumers today can take on the full cost of tariffs given the state of household balance sheets, recent inflation.
• We have to wait 3-6 months to see how uncertainty settles.
• Number of rate cuts this year depends on how things turn out, the details of the tariffs will matter.
• Leaning more towards only one cut this year because it will take time to understand tariffs.
• There’s a scenario where tariffs become less of a story over time.
• If the tariff transition is longer, it may impact consumer behavior.
• Treasury markets are functioning quite well.
• Inflation not moving to target as fast as anticipated.
• Uncertainty means there is higher risk, the Fed only controls one part of the price of capital.
• As things get more expensive, it changes the choices policymakers, households and businesses face, that will influence the path of the economy.
• Have not seen much movement on the jobs side, firms say they don’t have plans for large layoffs.

Bostic is a hawk and he’s not a voting member in 2025. He’s been supporting just one rate cut this year.

This article was written by Giuseppe Dellamotta at www.forexlive.com.