WASHINGTON, Jan 19, 2024 (BSS/AFP) - The US Federal Reserve could begin cutting interest rates "sooner than the third quarter" of this year, a voting member of the central bank's rate-setting committee said Thursday.

Policymakers recently voted to keep the Fed's benchmark lending rate at a 22-year high and indicated they expect as many as three rate cuts this year, signaling a new phase in its battle against inflation.

Futures traders expect the first of these reductions could come as soon as March, according to CME Group data, and are penciling in as many as six cuts this year.

In recent weeks, Fed officials have sounded a more cautious note about an early start to rate cuts, indicating that more work remains to be done to safely return inflation to the bank's long-term target of two percent.

On Thursday, Atlanta Fed President Raphael Bostic told a conference in the city that recent "unexpected progress" against inflation had led him to move up his forecast for the start of rate cuts from the fourth quarter of this year to the third quarter.

"If we continue to see a further accumulation of downside surprises in the data, it's possible for me to get comfortable enough to advocate normalization sooner than the third quarter," he said in prepared remarks.

"But the evidence would need to be convincing," added Bostic, who is a voting member of the Fed's rate-setting committee this year.

US businesses say they are feeling "optimistic" about the prospect of falling interest rates, the Fed announced in a report on economic conditions published Wednesday.

Lower interest rates reduce borrowing costs for businesses and consumers, and boost demand.

Despite leaving the door open to rate cuts ahead of the third quarter, Bostic indicated he would continue to be guided by incoming data.

"In such an unpredictable environment, it would be unwise to lock in an emphatic approach to monetary policy," he said.

"That is why I believe we should allow events to continue to unfold before beginning the process of normalizing policy," he added.