The Fed’s Raphael Bostic says Moody’s downgrade could ripple through markets, while inflation remains stubborn. One rate cut this year? Maybe.
“Moody’s downgrade will cut across economics, financial markets… will have implications for cost of capital, could ripple through economy,” Bostic said Monday, warning of potential broader fallout.
The Fed will need to wait and assess the downgrade’s effect on demand for U.S. debt and the overall economic outlook, which Bostic admits is already “in flux.” On recent volatility: “The market in April didn’t feel close to a major financial event.”
Bostic doubts households can fully absorb the cost of tariffs, citing strained balance sheets and persistent inflation.
On interest rates: leaning toward just one cut this year, stressing that tariff impacts will take time to fully understand.
“There is a scenario where tariffs become less of a story over time,” he added — but for now, risks remain tilted toward inflation.
Inflation isn’t falling as expected: “Inflation expectations are moving in a troubling way.”
Job market holding up for now: “Firms don’t plan large layoffs yet.”
Sentiment is dropping, but Bostic says the disconnect between data and sentiment may be narrowing as inventories bottom out.
Market Takeaways
Bond yields may stay elevated if Moody’s downgrade weakens demand and pushes up borrowing costs. Equities face headwinds from lingering rate uncertainty and rising inflation expectations. Tariff fears add complexity to the Fed’s path — fewer cuts, more volatility.
For now, the Fed’s bias is toward inflation control, not aggressive easing.
Disclosure: This article does not represent investment advice. The content and materials featured on this page are for educational purposes only.
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