Bostic Signals No Fed Rate Cuts in 2026 Amid Inflation Fears from GOP Tax Proposals

Atlanta Federal Reserve Bank President Raphael Bostic stated that the U.S. economy has stabilized enough to avoid a sharp rise in unemployment, reducing the immediate risk of a recession. However, he emphasized that the Federal Reserve would remain vigilant, particularly concerning the potential fiscal impact of pending Republican tax reform measures. Bostic noted that the proposed legislation could increase government spending and reduce tax revenues, potentially fueling inflation if not offset by tighter monetary policy. The Atlanta Fed chief highlighted that inflation remains above the Fed’s 2% target, with core personal consumption expenditures (PCE) inflation persisting at 3.1% as of Q3 2025. He warned that any fiscal stimulus from tax cuts—particularly those targeting corporations and high-income earners—could amplify demand-side pressures without a corresponding increase in supply, leading to sustained price increases. Bostic’s outlook contrasts with some Fed officials who have recently signaled a potential dovish pivot in 2025. His stance suggests a preference to keep the federal funds rate at a restrictive 5.25% through 2026, with no cuts expected before late 2026 unless inflation shows consistent and durable progress. This would mark a significant shift from previous projections that assumed at least two cuts in 2025. The market response was immediate, with the 10-year Treasury yield rising to 4.43%, and the CME FedWatch Tool indicating a 68% probability of no rate cuts in 2026. Investors in U.S. equities and fixed income reacted cautiously, with the S&P 500 closing 0.3% lower. The implications extend beyond monetary policy, affecting corporate borrowing costs, housing markets, and long-term investment planning.