Atlanta Federal Reserve President Raphael Bostic anticipates that policymakers will commence cutting rates in the third quarter of this year. He stated on Thursday that inflation is steadily moving towards the central bank’s target.

Bostic, who is a voting member of the rate-setting Federal Open Market Committee, emphasized the need to adjust policy in a way that doesn’t stifle economic growth, while simultaneously curbing persistently high prices.

He also noted that the prospect of achieving a scenario with controlled inflation, solid growth, and robust employment is closer than many Fed officials originally anticipated.

In his prepared remarks for a speech to business leaders in Atlanta, Bostic stated, “Because I base my decisions on data, I have incorporated the unexpected progress on inflation and economic activity into my outlook, and consequently, I have moved up my projected time to begin normalizing the federal funds rate to the third quarter of this year, instead of the fourth quarter.”

While Bostic’s comments provide some insight into the timeline for rate cuts, they also highlight the divergence in expectations between Fed officials and market participants regarding policy easing.

According to the CME Group’s FedWatch measure, current pricing in the fed funds futures market suggests that the first rate cut could occur as early as March. The implied probability of a quarter percentage point reduction has declined in recent days, but it still stood at around 57% on Thursday morning. The pricing further implies a total of six cuts throughout the year, one at each Federal Open Market Committee meeting from March onwards.

Bostic mentioned that he is not completely opposed to cutting rates earlier than the third quarter, potentially as early as July, but he emphasized the need for compelling evidence.

“If we continue to witness more negative surprises in the data, I may become convinced enough to advocate for normalization sooner than the third quarter,” he explained. “However, the evidence will need to be convincing.”

Bostic acknowledged that various factors, such as geopolitical conflicts, the ongoing budget battle in Washington, and the upcoming presidential election, could alter the dynamics. Therefore, he urged caution and pledged to adopt a grateful and vigilant approach.

“In such an unpredictable environment, it would be imprudent to adopt a definitive approach to monetary policy,” Bostic stated. “That’s why I believe we should allow events to unfold further before initiating the process of normalizing policy.”

He also highlighted several data points that he will monitor, including overall economic growth, inflation indicators such as the Commerce Department’s personal consumption expenditures price index, and employment data.

On Thursday, the Labor Department reported that initial jobless claims reached their lowest level since September 2022, indicating a tight labor market.