Fed Governor Bowman Open To Rate Hikes If Inflation Remains High

Federal Reserve Governor Michelle Bowman emphasized on Tuesday that the time is not yet right to start lowering interest rates, indicating her willingness to raise rates if inflation does not show sufficient signs of improvement.

During her speech in London, Bowman explained that if data indicates inflation is sustainably progressing toward the Fed's 2 percent target, it would eventually be suitable to gradually lower the federal funds rate as a way to prevent being overly restrictive on it's monetary policy. However, she emphasized that current conditions do not yet justify a rate reduction.

Bowman's comments reflect the prevailing sentiment at the Federal Reserve, where most policymakers have recently expressed the need for more concrete evidence before adjusting rates. While there is an expectation that inflation will return to the Fed’s 2% target, the Fed’s preferred inflation indicator is currently just under 3%. The Federal Open Market Committee (FOMC) noted after its last meeting that there has been only modest progress in reducing inflation.

Highlighting several upside risks that could necessitate a more aggressive stance on monetary policy, Bowman remains prepared to raise the target range for the federal funds rate at a future meeting if inflation progress stalls or reverses. Her cautious approach reflects the uncertainties and risks in the current economic outlook.

The Commerce Department is set to release its reading on the May personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge, on Friday. Economists surveyed by Dow Jones anticipate a 12-month inflation rate of 2.6% for both the all-items and core measures, which exclude food and energy prices. While this would represent a slight decline from April, Bowman expects the Fed to maintain its key overnight borrowing rate in the range of 5.25%-5.50% for some time.

Bowman also noted that the recent rate cuts by global counterparts, such as the European Central Bank, will not influence the Fed's policy. She suggested that U.S. monetary policy might diverge from that of other advanced economies in the coming months.

Bowman’s remarks come amid similar sentiments from other Fed officials. On Monday, San Francisco Fed President Mary Daly rejected the idea of a preemptive rate cut to hedge against potential risks in the labor market and a slowing economy, emphasizing the importance of maintaining a resolute stance until inflation is fully stabilized.

Chicago Fed President Austan Goolsbee also commented that continued positive inflation data might prompt a reconsideration of the current restrictive monetary policy. Observing more months of favorable inflation data could potentially lead to future rate cuts.

Overall, Bowman and her colleagues at the Fed are signaling a cautious and data-driven approach to future monetary policy decisions, with a continued focus on achieving the 2% inflation target and maintaining economic stability.

By: Michael Figueroa