US Federal Reserve Governor Michelle Bowman attends a “Fed Listens” event at Federal Reserve headquarters in Washington, D.C., on October 4, 2019.
Eric Bradat | AFP | Getty Images
Federal Reserve Governor Michelle Bowman said Friday that interest rates are likely to rise to control inflation, rather than the cuts her fellow officials have indicated are likely and which the market is anticipating.
Pointing to a number of potential upside risks to inflation, Bowman said policymakers need to be careful not to ease policy too quickly.
“Although these are not my baseline expectations, I still see the risk that at a future meeting we may need to raise interest rates further if progress on inflation stalls or even reverses,” she said in prepared remarks to address a group of experts. . Federal Reserve Bank of New York observers. “Cutting the interest rate too early or too quickly could trigger a rebound in inflation, requiring further interest rate increases in the future to bring inflation back to 2 percent in the long run.”
As a member of the Board of Governors, Bowman is a permanent, voting member of the Federal Open Market Committee, which sets interest rates. Since taking office in late 2018, her public speeches have placed her on the more hawkish side of the FOMC, meaning she favors a more aggressive stance toward containing inflation.
Bowman said the most likely outcome remains that “it will eventually become appropriate to cut” interest rates, although she noted that “we are not yet at the point” of a cut as “I still see a number of upside risks to inflation.”
The speech to the Shadow Open Market Committee comes as markets are nervous about the immediate future of Fed policy. Statements this week from several officials, including Chairman Jerome Powell, signaled a cautious approach to lowering interest rates. Atlanta Fed President Rafael Bostic, an FOMC voter, told CNBC that he likely expects only one cut this year, and Minneapolis Fed President Neel Kashkari noted that cuts cannot be made if inflation does not slow. To a greater extent.
Futures traders are pricing in three cuts this year, although it becomes a close call between June and July when they start. FOMC members in March also proposed three cuts this year, although one unidentified official in the “dot chart” indicated no cuts until 2026 and there was significant confusion about how aggressively the central bank would move.
“Given the risks and uncertainties related to my economic outlook, I will continue to monitor the data closely as I evaluate the appropriate path for monetary policy, and I will remain cautious in my approach to considering future changes in policy stance,” Bowman said. .
Weighing inflation risks, she said supply-side improvements that helped bring the numbers down this year may not have the same impact in the future. Furthermore, she cited geopolitical risks and fiscal stimulus as other upside risks, along with the continued rise in housing prices and a tight labor market.
“Inflation readings over the past two months suggest that progress may be uneven or slower in the future, especially for basic services,” Bowman said.
Fed officials are scheduled to take their next look at inflation data on Wednesday, when the Labor Department publishes the March Consumer Price Index report.
