Federal Reserve Governor Michelle Bowman expressed caution about further interest rate cuts, citing persistent inflation risks and a strong labor market.
Bowman's Statement at Conference
Speaking at the Kentucky Bankers Association today, Bowman reiterated her belief that the Fed should cut rates at a “moderate” pace and expressed concern that the labor market was not showing significant signs of weakness. “When it comes to risks to meeting our dual mandate, I continue to see greater risks to price stability, particularly as the labor market continues to approach full employment projections,” Bowman said.
Contrast with Jerome Powell's Position
Bowman's comments differ from other Fed officials who have recently suggested that the risks to achieving the Fed’s goals of maximum employment and stable inflation are balanced, and even more focused on employment. Last week, Bowman opposed the Fed's decision to cut interest rates by 50 basis points, opting for a smaller cut. Bowman argued that a 25 basis point cut would be a more appropriate first step in a rate-cutting cycle. Her cautious approach differs from that of Fed Chairman Jerome Powell, who has argued that a larger rate cut is necessary to maintain a strong labor market. Powell described the rate cut as an adjustment, not an indication of weakness in the economy.
Forecasts and Future Steps
Despite those concerns, Bowman said she was open to changing her stance if the labor market showed significant weakness. However, she noted that wage growth continued to point to a tight labor market despite recent increases in unemployment. Bowman also noted that core inflation, which excludes volatile categories such as food and energy, remains “uncomfortably” above the Fed’s 2% target. According to the Fed’s updated forecasts, while most officials support another 50 basis point cut by year-end, the outlook for 2025 is less clear. Bowman concluded that the neutral policy rate estimate, which neither stimulates nor constrains the economy, is now higher than it was before the pandemic.
Bowman emphasized the importance of a cautious approach to changing interest rates in order to achieve the goals of price stability and maximum employment.
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