Federal Reserve Governor Michelle Bowman speaks during a meeting of the Treasury Club in Washington, DC, United States, Wednesday, February 21, 2024.
West Village Kent | Bloomberg | Getty Images
Federal Reserve Governor Michelle Bowman said on Tuesday that now is not the right time to start cutting interest rates, adding that she would be willing to raise rates if inflation does not recede.
“If incoming data show that inflation continues to move toward our 2 percent goal, then it will ultimately be appropriate to gradually lower the federal funds rate to prevent monetary policy from becoming overly restrictive,” Bowman said in remarks prepared for the London speech. “However, we are not yet at the point where we can appropriately lower policy rates.”
The comments reflected the general sentiment at the Fed, with most policymakers saying in recent weeks that while they still expect inflation to return to the Fed’s 2% target, they need more evidence.
Recent data shows inflation is benign, with the Fed’s preferred indicator just below 3%. However, the rate-setting Federal Open Market Committee noted after its last meeting that only “modest further progress” had been made.
Bowman, one of the most hawkish of all policymakers, noted that there are now “many upside risks” that could accelerate her outlook.
“If progress is made to stall or even reverse inflation, I remain willing to raise the target range for the federal funds rate at future meetings,” she said. “Given the risks and uncertainties in the economic outlook, I am considering changes to the policy stance going forward.” Will remain cautious.”
The Commerce Department on Friday will release readings for May’s personal consumption expenditures price index, the Federal Reserve’s preferred inflation gauge. Economists surveyed by Dow Jones expected 12-month inflation in all items and core (excluding food and energy prices) to be 2.6%.
While that’s down from April, Bowman said she still expects the Fed to keep its key overnight borrowing rate in a range of 5.25%-5.5% “for some time.”
Additionally, she said she was not affected by interest rate cuts by global peers such as the European Central Bank, which recently cut its key interest rate by a quarter of a percentage point. “In the coming months, the path of U.S. monetary policy may differ from that of other developed economies,” Bowman said.
Bowman’s comments came as other officials said Monday they were hesitant to make budget cuts.
San Francisco Fed President Mary Daly rejected the idea of preemptively cutting interest rates to hedge against a deteriorating labor market and economic slowdown.
“I do think when you see the risk, you make preemptive cuts,” Daley told CNBC’s Deirdre Bosa at a public event in San Francisco. “We will stand firm until the job is done. That is why it is so important not to take preemptive action when it is not necessary.”
Additionally, Chicago Fed President Austan Goolsbee told CNBC’s Steve Liesman earlier in the day that if he sees “more months” of good Inflation data, then he will question whether policy needs to be as strict as before, paving the way for rate cuts.
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