Odd Lots Podcast Summary: Atlanta Fed's Raphael Bostic on Monetary Policy During Extreme Uncertainty

Release Date: May 16, 2025

In this compelling episode of Bloomberg's Odd Lots podcast, hosts Tracy Alloway and Joe Weisenthal engage in an in-depth conversation with Raphael Bostic, President of the Federal Reserve Bank of Atlanta. The discussion delves into the intricate dynamics of monetary policy amidst unprecedented economic uncertainty, influenced by factors such as tariffs, global trade tensions, and lingering effects of the COVID-19 pandemic.

1. Economic Resilience and Uncertainty

Bostic opens the discussion by addressing the current economic landscape marked by significant uncertainty. He emphasizes how this uncertainty impacts business and consumer confidence, leading to more cautious economic behaviors.

"[04:34] Bostic: ...there's just a tremendous amount of uncertainty out there. ...businesses and households aren't really comfortable making big decisions."

This pervasive uncertainty has led to decreased economic energy and resilience, potentially slowing down economic momentum for the remainder of the year.

2. Reevaluating Economic Indicators

The conversation shifts to the relationship between soft and hard economic data. Tracy Alloway points out the discrepancy between deteriorating soft data, such as consumer sentiment, and relatively strong hard data like GDP and wage growth.

"[08:18] Tracy Alloway: ...soft data is deteriorating, but the hard data remains relatively strong. Is there a risk that this time is different?"

Bostic responds by highlighting the evolving nature of economic perceptions and the importance of understanding psychological factors in economic decision-making.

"[08:44] Bostic: ...psychology is important, and it can shift people's decision making even when the information set doesn't change."

3. Impact of Tariffs and Trade Policies

A significant portion of the discussion revolves around the effects of tariffs as a supply shock and their implications for monetary policy. Joe Weisenthal raises questions about whether tariffs could set a floor for how low the Fed can adjust interest rates.

"[24:22] Joe Weisenthel: ...tariffs are a supply shock. ...does that therefore increase the terminal rate in terms of how low the Fed can ultimately go?"

Bostic explains that while tariffs exert an upward pressure on inflation, they complicate the Fed's policy decisions by introducing additional variables that must be considered.

"[25:11] Bostic: ...tariffs put an upward force on inflation. ...our policy is going to have to anticipate and potentially push against those inflationary forces."

4. Lessons from the Pandemic

Reflecting on the pandemic's aftermath, Bostic discusses how businesses learned to adjust pricing strategies without losing market share and the challenges related to labor market flexibility.

"[14:22] Bostic: ...firms have a reluctance to take actions that might cause them to have to do extra things to get back to where they are."

He notes that unlike during the pandemic, where government support kept household balance sheets strong, current conditions show that families' financial resilience might not be as robust, affecting consumer spending behaviors.

5. The Neutral Rate and Policy Navigation

The concept of the neutral rate (R*) is scrutinized in the context of current uncertainties. Tracy Alloway questions its utility in guiding policy amidst fluctuating economic indicators.

"[29:55] Tracy Alloway: ...is the neutral rate even a useful concept given the current levels of uncertainty?"

Bostic acknowledges the complexities and debates surrounding R*, emphasizing that economic models have inherent uncertainties and that real-world factors often deviate from theoretical expectations.

"[30:08] Bostic: ...economic models are models. They are stylized characterizations of how the world actually works."

6. Monetary vs. Fiscal Policy Tensions

The interplay between monetary policy and external fiscal decisions, such as trade policies, is explored. Bostic asserts that while the Fed adapts to changing policies, the magnitude of recent changes poses unique challenges.

"[40:54] Bostic: ...trade policy is not something that the Fed manages..."

He highlights the necessity for the Fed to continuously gather real-time insights from businesses to better anticipate and respond to evolving economic conditions.

7. Outlook and Policy Recommendations

Looking ahead, Bostic expresses caution, indicating that uncertainty is unlikely to resolve quickly, which may limit the number of rate cuts for the year.

"[43:07] Bostic: ...our outlook is one cut for the year. ...the uncertainty is unlikely to resolve itself quickly."

He underscores the importance of maintaining flexibility in policy decisions to navigate the ongoing economic transitions.

8. Small vs. Large Businesses

The discussion also touches upon how tariffs disproportionately affect small businesses compared to larger firms, with smaller entities bearing greater risks amid rising costs.

"[44:53] Bostic: Absolutely. ...small business leaders are the ones who are feeling most at risk."

9. Supply Chain Diversification

Finally, Bostic explores the long-term implications of tariffs on supply chain strategies, predicting a shift towards diversification to mitigate risks associated with geopolitical tensions.

"[48:56] Tracy Alloway: ...companies have to top of mind... how these things get organized."

He anticipates that this diversification will complicate economic forecasting and require more nuanced policy approaches.

Conclusion

Raphael Bostic provides a nuanced perspective on navigating monetary policy amid extreme uncertainty, highlighting the intertwined nature of global trade dynamics, consumer behavior, and economic resilience. The conversation underscores the Federal Reserve's adaptive strategies in response to evolving economic indicators and external policy shifts.

Notable Quotes:

• "[04:34] Bostic: ...there's just a tremendous amount of uncertainty out there..."
• "[08:44] Bostic: ...psychology is important, and it can shift people's decision making..."
• "[25:11] Bostic: ...tariffs put an upward force on inflation..."
• "[30:08] Bostic: ...economic models are models. They are stylized characterizations..."
• "[43:07] Bostic: ...our outlook is one cut for the year..."

This episode offers valuable insights for economists, policymakers, and anyone interested in understanding the complexities of monetary policy in today's volatile economic environment.