Federal Reserve Governor Michelle Bowman speaks during the Exchequer Club meeting in Washington, DC, February 21, 2024.
Kent Nishimura | Bloomberg | Getty Images
Federal Reserve Governor Michelle Bowman said Thursday she supports recent interest rate cuts but sees no need to go further.
In a speech to bankers in California that was part monetary policy, part regulation, Bowman said her concern that inflation had remained “uncomfortably above” the Fed's 2 percent target led her to believe so That the quarter-percentage point cut in December is likely to be the last one for the current cycle.
“I supported the December political action because that is what I believe it represents [Federal Open Market Committee’s] “The final step in the policy recalibration phase,” the central banker said in prepared remarks. Bowman added that the current policy rate is close to what she sees as “neutral,” which neither supports nor inhibits growth.
Despite the progress made, there are “upside risks to inflation,” Bowman added. The Fed's preferred inflation gauge showed a rate of 2.4% in November, but was 2.8% excluding food and energy, a core measure that officials view as a better long-term indicator.
“The inflation rate fell significantly in 2023, but that progress appears to have stalled last year with core inflation still uncomfortably above the committee's 2 percent target,” Bowman added.
The comments came the day after the FOMC released minutes of its Dec. 17 and 18 meeting, showing that other members were also concerned about the direction of inflation, although most expressed confidence that they would will trend back toward the 2 percent target and will eventually reach this target in 2027. The Fed cut its key interest rate by a full percentage point from September to December.
In fact, other Fed speakers this week expressed views that contradicted those of Bowman, who is widely seen as one of the committee's more hawkish members, meaning she favors a more aggressive approach to controlling inflation that includes higher interest rates.
In a speech in Paris on Wednesday, Gov. Christopher Waller was more optimistic about inflation, saying imputed or estimated prices incorporated into inflation data are keeping interest rates high while observed prices are showing moderation. He expects “further cuts to the Fed’s key interest rate will be appropriate,” which is currently in a range between 4.25% and 4.5%.
Early Thursday, regional presidents Susan Collins of Boston and Patrick Harker of Philadelphia both expressed confidence that the Fed will be able to cut interest rates this year, if it does so more slowly than previously thought. The Federal Open Market Committee (FOMC) at its December meeting priced in the equivalent of two quarter-point cuts this year, up from the four expected at its September meeting.
Still, as governor, Bowman is a permanent voter on the FOMC and will have a say in policy this year. She is also considered one of the favorites to be named acting chairwoman of the banking regulator after President-elect Donald Trump takes office later this month.
Regarding the new administration, Bowman advised her colleagues not to make “preconceptions” about what Trump might do on issues like tariffs and immigration. The December minutes showed concerns from officials about what impact the initiatives could have on the economy.
At the same time, Bowman expressed concerns about policy easing too much. She cited strong stock market gains and rising Treasury yields as signs that interest rates were slowing economic activity and curbing inflation.
“Given these considerations, I continue to favor a cautious and gradual approach to policy adjustment,” she said.