Michelle Bowman, Governor of the U.S. Federal Reserve, speaks during the Exchequer Club meeting in Washington, DC, on February 21, 2024.
Kent Nishimura | Bloomberg | Getty Images
Federal Reserve Governor Michelle Bowman said Thursday she supported the recent rate cuts but sees no need to go further.
In a speech to California bankers that was part monetary policy and part regulation, Bowman said concerns that inflation is “uncomfortably above” the Fed’s 2% target led her to believe the quarter-quarter cut percentage point in December should be the last. one for the current cycle.
“I supported the December policy action because, in my opinion, it would… [Federal Open Market Committee’s] final step in the policy recalibration phase,” the central banker said in prepared remarks. Bowman added that the current policy rate is near what she considers “neutral” and neither supports nor inhibits growth.
Despite the progress made, there are “upside risks to inflation,” Bowman said. The Fed’s favorite inflation gauge showed a rate of 2.4% in November but stood at 2.8% when excluding food and energy, a core measure that officials see as a better long-term indicator.
“The inflation rate has fallen significantly in 2023, but this progress appears to have stalled last year, with core inflation still uncomfortably above the Committee’s 2 percent target,” Bowman added.
The comments come the day after the FOMC released minutes of its Dec. 17-18 meeting, which showed other members were also concerned about the way inflation is trending, though most expressed confidence that it will drift back toward the target of 2%, and will ultimately reach that target in 2027. The Fed cut its key interest rate a full percentage point from September through December.
In fact, other Fed speakers this week offered positions at odds with those of Bowman, who is generally considered one of the committee’s more hawkish members, meaning she favors a more aggressive approach to controlling of inflation, which includes higher interest rates.
In a speech delivered in Paris on Wednesday, Gov Christopher Waller had a more optimistic assessment on inflation, saying that imputed or estimated prices that contribute to inflation rates keep interest rates high, while observed prices are moderate. He expects “further reductions will be appropriate” for the Fed’s key policy rate, which is currently between 4.25% and 4.5%.
Earlier Thursday, regional presidents Susan Collins of Boston and Patrick Harker of Philadelphia expressed confidence that the Fed will be able to cut rates this year, if the pace is slower than previously thought. The FOMC priced in the equivalent of two quarter-point cuts at this December meeting, as opposed to the four expected at the September meeting.
Still, as governor, Bowman is a permanent voter in the FOMC and will have a say in policy this year. She is also considered one of the favorites to be named vice chair of banking oversight after President-elect Donald Trump takes office later this month.
Speaking of the new administration, Bowman advised her colleagues not to prejudge what Trump might do on issues like tariffs and immigration. The December minutes showed officials were concerned about what the initiatives could mean for the economy.
At the same time, Bowman expressed concern about relaxing the policy too much. She cited strong stock market gains and rising government bond yields as indications that interest rates were restraining economic activity and slowing inflation.
“In light of these considerations, I continue to favor a cautious and gradual approach to policy adjustments,” she said.