--- title: "Is the risk of the Federal Reserve raising interest rates underestimated? Bostic warns before stepping down: If inflation rebounds, interest rate hikes will return to the agenda" type: "News" locale: "en" url: "https://longbridge.com/en/news/276710218.md" description: "The risk of the Federal Reserve raising interest rates is underestimated, warned Atlanta Fed President Raphael Bostic before his departure, stating that if inflation rebounds, rate hikes will return to the agenda. He pointed out that the economy has shown resilience to trade shocks and that spending on artificial intelligence provides strong support. Despite market expectations for rate cuts, Bostic remains highly vigilant about rising inflation and believes that rate hikes must be considered. The latest inflation data adds weight to his warning" datetime: "2026-02-24T09:19:14.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/276710218.md) - [en](https://longbridge.com/en/news/276710218.md) - [zh-HK](https://longbridge.com/zh-HK/news/276710218.md) --- > Supported Languages: [简体中文](https://longbridge.com/zh-CN/news/276710218.md) | [繁體中文](https://longbridge.com/zh-HK/news/276710218.md) # Is the risk of the Federal Reserve raising interest rates underestimated? Bostic warns before stepping down: If inflation rebounds, interest rate hikes will return to the agenda According to Zhitong Finance APP, amidst widespread market concerns following the U.S. Supreme Court's repeal of President Donald Trump's emergency tariff order, an unexpected perspective on Federal Reserve policy may be overlooked by the market — future interest rate hikes are not out of the question. Starting from last Friday morning, a flood of information has poured in — GDP data significantly underperformed expectations, inflation readings were explosive, court rulings followed, and then Trump intensified the push for higher global tariffs — leaving most investors bewildered as the new week began. The surge of data and dramatic events may also explain why a sharp warning from a soon-to-retire regional Fed president has not garnered much attention. Rafael Bostic, the Atlanta Fed president who has shifted from centrist to hawkish, will step down at the end of this month after nearly nine years at the helm of the Atlanta Fed. However, his parting shot last Friday highlighted the extent of resistance within the Fed to any further easing — let alone the significant rate cuts that Trump has demanded and some Fed officials he appointed seem willing to endorse. Bostic believes that the economy has shown "remarkable resilience" to last year's trade shocks and is benefiting from strong tailwinds from artificial intelligence spending. He stated that, for this reason, a "slightly tighter" policy should be maintained. However, he is highly vigilant about any signs of inflation re-emerging. "If it starts to move in the opposite direction again — a situation that hasn't occurred in years — that would be extremely concerning, and for me, raising interest rates would have to be on the table." For the current market — which has priced in nearly 60 basis points of further rate cuts this year — this outlook is undoubtedly sobering; and the latest inflation data adds weight to his warning. Although the overall Consumer Price Index (CPI) data for January showed weakness, initially sparking a wave of speculation in the bond market, the inflation metric that the Fed closely monitors — the "core" measure of Personal Consumption Expenditures (PCE) inflation basket, excluding food and energy prices — has been moving in an unfavorable direction. Against the backdrop of unexpectedly weak fourth-quarter GDP data and the chaos caused by tariff policies last Friday, the December core PCE price index showed that the inflation rate climbed back to 3.0% for the first time in two years — a figure not only above market expectations but also a full percentage point higher than the Fed's target. ![image.png](https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20260224/1771923568993503.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg) Additionally, components of the CPI included in the PCE calculation, such as core goods prices, suggest that the January core PCE reading is likely to remain elevated as well Given that the PCE readings also draw on components of the Producer Price Index (PPI) — such as airfare, medical services, and portfolio management fees — the estimate for January's core PCE could rise to 3.1% following last Friday's PPI release. Tim Duy, a Federal Reserve observer at SGH Macro Advisors, noted, "The latest data is concerning, and core inflation may be stickier than assumed in the December SEP (Summary of Economic Projections)." He also mentioned that Federal Reserve Chairman Jerome Powell has quietly pushed back the expected timeline for tariffs to peak inflation to later this year. ## Is the Federal Reserve fueling inflation? Indeed, the impact of tariffs on inflation has been contentious so far — but there are signs that last year's tariff increases are showing a delayed "transmission" to commodity prices. The U.S. Supreme Court's ruling to overturn Trump's emergency tariffs could have provided some relief in this regard. However, Trump's insistence that all these tariffs will ultimately be replaced by new tariffs means that any relief will be fleeting, and the transmission process may even be prolonged. Bostic and his more hawkish colleagues are concerned that the longer core inflation remains above target, the more businesses and the public will assume that the Federal Reserve is tolerating it, thereby solidifying it in expectations. Core PCE inflation has been below 2% for most of the past decade, but it has now remained firmly above target for nearly five years. The stubbornly dovish market thinking heavily relies on the assumption that Kevin Warsh, appointed by Trump, will take over as Federal Reserve Chairman in May, thereby building a stronger case for restoring rate cuts within the Federal Reserve. This case may be based on a series of arguments: that tariff-related price shocks are temporary, that the labor market is weak, and that AI-driven productivity gains are just around the corner — even as trillions of dollars are being invested in the real sector's infrastructure to adapt to the AI boom. For many, the arguments regarding AI lack persuasiveness. Historically, during periods of significant increases in technology-related investments, real interest rates tend to rise — a necessary measure to stabilize the economy when overheating occurs, and this happens before any deflationary effects from productivity gains ultimately manifest. Even dovish Federal Reserve Governor Christopher Waller acknowledged this on Monday. "The higher the economic productivity and the faster the growth, the higher real interest rates typically are." ![image.png](https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20260224/1771923463214619.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg) There is also a tricky question: Is the current Federal Reserve policy stimulating economic activity and prices? Hawkish Bostic claims that the Federal Reserve's rate of 3.62% is still slightly tight. However, Minneapolis Fed President Neel Kashkari stated last week that he believes rates are essentially at neutral levels And this is crucial. Does the Federal Reserve really want to start stimulating the economy at this critical juncture? Based on different models co-authored by New York Fed President John Williams, the current actual interest rate of the Federal Reserve is estimated to be about 50-100 basis points lower than the neutral rate. When Bostic issued the warning, perhaps the "red light" had already been lit. Ignoring it completely at this point would likely be an extremely unwise move. ![image.png](https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20260224/1771923519559759.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg) ### Related Stocks - [iShares Future AI & Tech ETF (ARTY.US)](https://longbridge.com/en/quote/ARTY.US.md) - [NASDAQ-100 (.NDX.US)](https://longbridge.com/en/quote/.NDX.US.md) - [Cboe Global Markets, Inc. (CBOE.US)](https://longbridge.com/en/quote/CBOE.US.md) - [Nasdaq, Inc. 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