Raphael Bostic
President and Chief Executive Officer
Federal Reserve Bank of Atlanta

February 20, 2025

Key Points

• In his first quarterly message of 2025, Atlanta Fed president Raphael Bostic writes that monetary policy is in a good place and the economy is strong. Still, he cautions, this is no time for complacency.
• Bostic views the employment outlook as stable, but notes accumulating signs of slowing. Strong monthly jobs growth and wage increases suggest that demand for workers remains solid. However, it’s harder for unemployed workers to find jobs—the average stint of unemployment is about three weeks longer than it was last summer.
• Regarding price stability, Bostic expects the bumpy course toward the Federal Open Market Committee’s objective of 2 percent inflation to continue. On the positive side, longer-term inflation expectations, typically a guide to future inflation, are mostly at healthy levels. On the other hand, the Atlanta Fed’s Underlying Inflation Dashboard shows various price measures remain well above the Fed's target.
• The macroeconomic outlook, Bostic warns, is clouded by heightened uncertainty. Much of that uncertainty stems from potential shifts in fiscal, trade, and immigration policy that could affect prices and the labor market.

At its latest meeting in January, the Federal Open Market Committee kept the federal funds rate target at a range of 4-1/4 to 4-1/2 percent, after lowering it a full percentage point over the last three meetings of 2024.

I supported dialing back the degree of restrictiveness of monetary policy because the balance of risks to our dual mandate of price stability and maximum employment had shifted. Inflation has declined markedly—from above 7 percent in mid-2022 to under 3 percent per the 12-month change in the personal consumption expenditures price index—and so while inflation remains above target, price stability is no longer quite the urgent concern it was next to a cooling-but-still-solid labor market. By reducing restrictiveness, the Committee aims to ensure the labor market does not seriously deteriorate, and thus that the risks to the two sides of the mandate remain in balance.

In sum, monetary policy is in a good place and the economy is strong. Still, for various reasons, this is no time for complacency.

I view the employment outlook as stable, but signs of slowing are accumulating. And despite considerable progress, our campaign to bring inflation to the Committee's 2 percent goal is not complete, and additional threats to price stability may emerge.

Finally, the economy faces heightened uncertainty. Unusual macroeconomic dynamics that have led us to this happy place might not last. Specifically, we achieved substantial progress on inflation without a spike in unemployment thanks to favorable tradeoffs between job vacancies and unemployment, and between labor market slack and inflation.

What I mean is, rather than lots of jobs evaporating as economic growth normalized and inflation cooled (a typical dynamic), labor demand softening took the form of dwindling job vacancies. And a persistently robust labor market and rising wages historically have stoked inflation, but that has not happened the past couple of years. I am vigilant, though, because these tradeoffs could turn less advantageous, and that adds uncertainty to the economic outlook.

Further uncertainty stems from potential shifts in economic, trade, and immigration policy that could affect both prices and labor markets.

Labor market keeps chugging

Let me dive a little deeper into three topics—the labor market, inflation, and uncertainty—starting with employment.

First, the good news on the labor market: Monthly payroll employment growth has held up well, averaging 237,000 over the three months through January. Reports of layoffs or planned layoffs remain rare among our business contacts, and aggregate data tell the same story. Monthly layoffs and discharges through November 2024 ticked up from extraordinary lows of the previous two years, but otherwise remain below numbers from any year since 2002, when the US Bureau of Labor Statistics (BLS) began compiling the data. The unemployment rate of 4 percent in January was higher than the ultra-low levels of 2022 and 2023, but still healthy by historical standards.

Meanwhile, real wages (adjusted for inflation) are rising, according to our Wage Growth Tracker, another sign that demand for workers remains solid.

At the same time, there's clear softening in the labor market. It's harder for unemployed workers to find jobs than it was last summer, and job finding probabilities are now lower than they were prepandemic. Consequently, the average stint of unemployment is about three weeks longer than it was in August, according to the BLS.

Not surprisingly, then, fewer people feel comfortable enough about finding new work to quit their job. The "quits rate," the percentage of all workers who voluntarily leave a job in a given month, has declined to levels last seen in 2015, excluding the pandemic years.

Another indicator my staff and I watch closely, the Federal Reserve Bank of Kansas City's Labor Market Conditions Indicators level of activity measure, suggests that conditions are similar to 2017, when the labor market was not nearly as tight as it was in 2022.

Finally, employment growth has narrowed. Three sectors—healthcare and social assistance, leisure and hospitality, and government, primarily at the state and local levels—accounted for roughly three-quarters of job growth in the past year, compared to about 45 percent in the several years before the pandemic. Research from a trio of Atlanta Fed economists—Patrick Higgins, Melinda Pitts, and David Wiczer—suggests that the outsized job growth from these sectors could be waning.

So, again, while the labor market is broadly stable, my staff and I are monitoring potential vulnerabilities.  

As for price stability, I'm confident inflation will settle to 2 percent in time, even if the ride continues to be bumpy. Indeed, we saw an example of this bumpiness in the consumer price index for January, which showed a pretty significant rebound relative to what we've seen in recent months. While I want to be careful not to overreact to one data point, we will be working hard to unpack these numbers and other data points with the goal of better understanding the dynamics contributing to the ups and downs in the data.

Taken as a whole, recent inflation data have supplied evidence for both optimism and pessimism. On the positive side, longer-term inflation expectations, typically a guide to future inflation, are mostly at healthy levels. To cite one gauge, the Atlanta Fed Business Inflation Expectations survey from December found that, for the first time in four years, respondents on average expect unit costs will rise just 2 percent over the next 12 months. That is in line with where that measure hovered during the low-inflation years before the pandemic.

Also to the good, recent price pressure continues to emanate mostly from shelter-related prices. Price pressure from housing should dissipate further as the progress we’ve seen in market-based price measures—think Zillow or Redfin—eventually work their way into the official inflation data. Moreover, aggregate statistics and input from our business contacts convince me we are not on the cusp of an inflationary burst of economic activity.

As for a cautionary take on inflation, a signal I watch closely is the proportion of goods and services whose prices rise 3 percent or more year-over-year. That share remains above prepandemic levels. And core inflation, which historically has been a good predictor of future headline inflation, has not declined meaningfully since last summer. Finally, in the Atlanta Fed's Underlying Inflation Dashboard, as of December all nine metrics showed a 12-month growth rate at least 0.5 percentage points above our target.

Broadly speaking, I think inflation in the coming months will continue a bumpy course toward the Committee's 2 percent objective.

Uncertainty is pervasive in early 2025

My use of the word "bumpy" hints at the third topic of this message: uncertainty. Very simply, uncertainty is up across the board.  

Gauges of uncertainty climbed steeply late last year. The global economic policy uncertainty index, compiled by economists who collaborate with our staff on the Survey of Business Uncertainty (SBU), in December hit a level unseen since early in the pandemic. A trade policy uncertainty index by a group of Federal Reserve economists has surged past its historic peak. And since the middle of last year, firms in our SBU are reporting higher expected sales growth rates, but uncertainty around these forecasts is higher than prepandemic levels.

For me, a good read of uncertainty comes from our business contacts. In recent weeks, we've heard not only enthusiasm—particularly from banks, about possible shifts in tax and regulatory policies—but also widespread apprehension about future trade and immigration policy. These crosscurrents inject still more complexity into policymaking.

In a nutshell, contacts are concerned that tariffs could increase costs. Many feel confident that if that happens, then they can pass along higher costs in their prices. Some contacts also tell us the tumult of the past few years has conditioned their businesses to better handle shocks. For example, some said they adjusted supply chains in reaction to the pandemic disruptions in ways that could mitigate the effects of tariffs, by nearshoring or onshoring production, for instance. Some have stocked up on inventories in anticipation of tariffs.

Our economists are also exploring previous episodes of trade tensions to try and clarify the range of possible scenarios. Work by the Atlanta Fed's Camelia Minoiu and Federal Reserve colleagues, for instance, suggests that banks with high exposure to sectors facing intense trade uncertainty could pull back from lending, with negative effects for firms that depend on bank loans.

On the immigration front, contacts expressed concern that mass deportations could reduce the labor supply, particularly in industries like home construction and leisure and hospitality. Immigration has helped to fuel a growing labor supply since the pandemic, which has boosted the labor market and broader economy. A sudden decline in the number of available workers could create unpredictable disruptions, contacts tell us, even among employers who do not typically employ large numbers of immigrants.

To be clear, as I write this in early February, most of our contacts say they have not taken concrete steps in response to potential changes in trade or immigration policy. They are contemplating the road ahead, of course, and some have hired consultants or lobbyists to help.

Let me also offer here that, in discussing these matters, I am in no way advocating nor critiquing a position, nor am I trying to influence elected officials. The Federal Reserve is an apolitical institution, and I never tell policymakers what they should do. That said, these issues are very much on the minds of business decision-makers my staff and I talk to, and so they must be considered in my outlook for the economy and monetary policy.

It's also important to note that, as of this writing in early February, the particulars of any tariffs or deportation programs are not clear. The situations are quite fluid, changing sometimes hour by hour. So, it is impossible to say with certainty how any new approach might influence decisions and economic outcomes.

Fed launching strategic review of policymaking

Unsettling as economic uncertainty can be, it is a constant in a dynamic, globally interconnected economy. While particular policy questions may resolve with time, macroeconomic conditions will not stop evolving. To keep our monetary policy approach as current as possible, the Federal Reserve Board of Governors conducts a comprehensive review of policy strategy, tools, and communications every five years. The Board in November announced another such review.

I look forward to it. The framework review gives Fed policymakers like me the opportunity to hear from a broad swath of the public through events called Fed Listens. We will discuss with civic, community, business, and nonprofit leaders fundamental issues such as how monetary policy affects day-to-day conditions in their communities, changes they think we should consider, and whether people understand how monetary policy works.

The perspectives I gleaned from the last review process were influential in shaping how I thought about monetary policy and how it is implemented. I expect the same will happen this time around. So, I'm not going in with a set notion of what the product of the framework review will be. Instead, I'm going in with an open mind.

In closing, regarding my present stance on monetary policy, I will sum it up this way: The economy is strong, monetary policy is well positioned, and today's pervasive ambiguity calls for caution and humility as we continue working to bring about price stability and maximum employment for the American people.