Michelle Bowman, the governor of the Federal Reserve, stated on Thursday that she agreed with the recent interest rate reductions but did not see the need to go farther.
In a speech to California bankers that was a combination of monetary policy and regulation, Bowman stated that she believes the quarter percentage point cut in December should be the final one for the current cycle because she is concerned that inflation has remained uncomfortably above the Fed’s 2% target.
In prepared remarks, the central banker stated, “I supported the December policy action because I believe it represented the [Federal Open Market Committee’s] final step in the policy recalibration phase.” Bowman went on to say that the present policy rate is close to what she considers to be neutral, meaning it neither promotes nor inhibits growth.
Bowman stated that there are upside risks to inflation notwithstanding the advancements that have been accomplished. In November, the Fed’s preferred inflation gauge showed a rate of 2.4%, but when food and energy are taken out of the equation, it was 2.8%. Officials believe this core measure to be a stronger long-term indication.
The rate of inflation decreased dramatically in 2023, but Bowman noted that core inflation was remained uncomfortably higher than the Committee’s 2 percent target last year, suggesting that this progress may have paused.
The comments were made the day after the FOMC published minutes from its meeting on December 17–18, which revealed that while most members expressed confidence that inflation would eventually return to the 2% target in 2027, other members were also worried about how it was going. From September to December, the Fed cut its main borrowing rate by a full percentage point.
In actuality, Bowman, who is typically seen as one of the committee’s more hawkish members—that is, she favors a more aggressive strategy to contain inflation that involves higher interest rates—had opinions that differed from those of other Fed speakers this week.
Governor Christopher Waller took a more upbeat stance on inflation in a speech on Wednesday in Paris, stating that observed prices are exhibiting moderation while imputed, or estimated, prices that are fed into inflation data are maintaining rates high. He believes that additional cuts to the Fed’s main policy rate, which is now between 4.25% and 4.5%, will be justified.
Regional Presidents Patrick Harker of Philadelphia and Susan Collins of Boston also voiced confidence earlier Thursday that the Fed will be able to cut rates this year, albeit more slowly than initially anticipated. Instead of the four quarter-point cuts anticipated at the September meeting, the FOMC priced in the equivalent of two this year at the December meeting.
Nevertheless, Bowman will have a voice in policy this year as a governor and a permanent voter on the FOMC. When President-elect Donald Trump assumes office later this month, she is also regarded as one of the front-runners to be appointed the banking industry’s vice chair of oversight.
Regarding the upcoming government, Bowman cautioned her colleagues against making assumptions about Trump’s potential actions on matters like immigration and tariffs. According to the December minutes, officials were worried about the potential economic impact of the measures.
Bowman, however, voiced concerns about too relaxing policies. She pointed to rising Treasury yields and robust stock market gains as evidence that interest rates were controlling inflation and limiting economic activity.
Given these factors, I still favor a methodical and incremental approach to policy changes, she stated.
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