Atlanta Federal Reserve Chairman Bostic says officials can't wait for inflation to hit 2% before cutting rates.

Atlanta Federal Reserve President Raphael Bostic indicated on Wednesday that he is prepared to cut interest rates even if inflation remains above the central bank's target.

Bostic, previously one of the more hawkish policymakers and an advocate of tighter policies to combat inflation, noted that his focus is increasingly shifting to the employment side of the Fed's mandate as signs of deteriorating labor markets mount.

“I believe we cannot wait until inflation actually falls to 2 percent before we begin lifting restrictions, as this risks creating labor market disruptions that could cause unnecessary pain and suffering,” he wrote in a message on the Atlanta Fed's website.

The Fed’s preferred measure showed inflation at 2.5% in July, with the core rate only slightly higher at 2.6%, excluding food and energy. Bostic did not specify how much or when he thinks the Fed should start easing.

However, the letter comes as markets are already expecting the central bank's Federal Open Market Committee to cut its key lending rate by at least a quarter of a percentage point when it meets on Sept. 17-18.

As a voting member of the FOMC this year, Bostic’s views carry extra weight and provide additional assurance that the Fed will deliver its first easing since the emergency measures it took more than four years ago in the early days of the Covid crisis.

His comments also come two days ahead of what is expected to be a crucial nonfarm payrolls report, as most economists see the labor market losing momentum. Bostic said his experience with business leaders in the Atlanta area reflects that concern.

“Rest assured, I don't sense any impending crash or panic among business contacts. However, the data and our grassroots feedback describe an economy and labor market that are losing momentum,” he said. “The upside of this is that the slowdown in activity is fueling a continued, welcome decline in the pace of inflation.”

He cited several factors that indicate inflation is convincingly returning to Fed levels as the labor market tightens.

“Given the circumstances we face — declining pricing power and a cooling labor market — I have refocused on both sides of the dual mandate for the first time since early 2021,” he said.