Federal Reserve Governor Michelle Bowman attends a “Fed Listens” event at Federal Reserve headquarters in Washington, DC on October 4, 2019.
Eric Baradat | AFP | Getty Images
Federal Reserve Governor Michelle Bowman said on Friday that interest rates may need to move higher to control inflation, rather than the cuts that her fellow officials have indicated are likely and that the market is expecting.
Noting a number of potential upside risks to inflation, Bowman said policymakers should be careful not to ease policy too quickly.
“Although it is not my main view, I still see the risk that at a future meeting we may need to raise the policy rate further if we go ahead with the inflation stop or even the reversal,” he said in prepared remarks for a speech in a group. of Fed observers in New York. “Cutting our policy rate too soon or too quickly could lead to a rebound in inflation, requiring further future increases in policy rates to return inflation to 2 percent over the long term.”
As a member of the Board, Bowman is a permanent voting member of the rate-setting Federal Open Market Committee. Since taking office in late 2018, her public speeches have put her on the more hawkish side of the FOMC, meaning she favors a more aggressive stance toward curbing inflation.
Bowman said her most likely outcome remains that “eventually it will become appropriate” to cut rates, though she noted that “we are not yet at the point” of a cut as “I continue to see a number of upside risks to inflation.”
The speech, at the Shadow Open Market Committee, comes as markets are on edge about the near-term future of Fed policy. Statements this week from several officials, including Chairman Jerome Powell, indicated a cautious approach to cutting interest rates. Atlanta Fed President Raphael Bostic, a FOMC voter, told CNBC he would likely see only one tapering this year, and Minneapolis Fed President Neil Cascari said there could be no cuts if inflation does not slow further.
Futures traders are pricing in three declines this year, although it’s been a close call between June and July on when they’ll start. FOMC members in March also made three cuts this year, although an unnamed official in the dot plot said there were no cuts until 2026 and there was considerable spread otherwise on how aggressively the central bank would move.
“Given the risks and uncertainties surrounding my economic outlook, I will continue to watch the data carefully as I assess the appropriate course of monetary policy and remain cautious in my approach to considering future changes in the stance of policy,” Bowman said. . .
Weighing inflation risks, he said the supply-side improvements that helped push numbers down this year may not have the same impact going forward. In addition, he cited geopolitical risks and fiscal stimulus as other upside risks, along with stubbornly higher house prices and a tight labor market.
“Inflation readings over the past two months suggest that progress may be uneven or slower going forward, especially for core services,” Bowman said.
Fed officials will take their next look at inflation data on Wednesday, when the Labor Department releases its March consumer price index report.