Fed officials express mixed views on inflation and rate cuts as Bowman highlights core inflation risks
Federal Reserve Governor Michelle Bowman expressed her support for the December interest rate cut but stated she does not see the need for further reductions, according to CNBC.
Speaking to bankers in California, Bowman explained that inflation remaining “uncomfortably above” the Fed's 2 percent target influenced her decision to back the quarter percentage point cut in December.
“I supported the December policy action because, in my view, it represented the [Federal Open Market Committee’s] final step in the policy recalibration phase,” Bowman said in her prepared remarks.
She added that the current policy rate is close to “neutral,” meaning it neither stimulates nor restrains US economic growth.
Bowman highlighted ongoing risks to inflation, noting that the Fed’s preferred inflation gauge showed a 2.4 percent rate in November, while the core measure, excluding food and energy, stood at 2.8 percent.
She remarked, “The rate of inflation declined significantly in 2023, but this progress appears to have stalled last year with core inflation still uncomfortably above the Committee’s 2 percent goal.”
Bowman’s perspective contrasts with views from other Federal Reserve members. Governor Christopher Waller, speaking in Paris, offered a more optimistic outlook.
Waller attributed higher US inflation figures to imputed prices and said observed prices showed moderation, suggesting “further reductions will be appropriate” to the main policy rate, which currently ranges between 4.25 percent and 4.5 percent.
Boston Fed President Susan Collins and Philadelphia Fed President Patrick Harker also voiced confidence that rates could be reduced this year.
The FOMC’s December meeting minutes indicated a revised expectation of two quarter-point cuts in 2024, down from four cuts projected in September.
Bowman, a permanent voter on the FOMC, underscored her preference for a gradual approach to policy adjustments. She pointed to rising Treasury yields and stock market gains as evidence that interest rates are effectively restraining economic activity and curbing inflation.
“In light of these considerations, I continue to prefer a cautious and gradual approach to adjusting policy,” she said.
She also addressed the incoming Trump administration, urging her colleagues not to “prejudge” potential actions on tariffs and immigration.
The December meeting minutes showed concern among Fed officials about the potential economic impact of these initiatives.
As a permanent FOMC voter, Bowman will have a significant say in 2024 monetary policy.
She is also regarded as a leading candidate for the position of vice chair of supervision for the banking industry under the new administration.
