Fed Governor Bowman says December interest rate cut should be the last

Federal Reserve Governor Michelle Bowman said Thursday she supported the recent interest rate cuts but sees no need to go further.

In a speech to bankers in California that was part monetary policy and part regulation, Bowman said concerns that inflation has remained “uncomfortably above” the Federal Reserve’s 2% target lead her to believe that he reduction of a quarter of a percentage point in December should be the last one for the current cycle.

“I supported the political action of December because, in my opinion, it represented the [Federal Open Market Committee’s] 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 considers “neutral,” which neither supports nor constrains growth.

Despite the progress that has been made, there are “upside risks to inflation,” Bowman added. The Federal Reserve preferred inflation indicator showed a rate of 2.4% in November, but was 2.8% if food and energy are excluded, a basic measure that officials see as a better long-term indicator.

“The inflation rate slowed significantly in 2023, but this progress appears to have stalled last year, with core inflation still uncomfortably above the Committee’s 2 percent target,” Bowman added.

Comments arrive the day after Minutes published by the FOMC from the Dec. 17-18 meeting that showed other members were also concerned about how inflation is developing, although most expressed confidence that it will return toward the 2% target, eventually getting there in 2027. The Federal Reserve cut a full percentage point from its key borrowing rate from September to December.

In fact, other Fed speakers this week expressed views contrary to those of Bowman, who is generally considered one of the committee’s most hawkish members, meaning she prefers a more aggressive approach to controlling inflation that includes rates. higher interest rates.

In a speech delivered Wednesday in Paris, Governor Christopher Waller had a more optimistic view on inflation, saying that the imputed, or estimated, prices that feed the inflation data keep rates high, while observed prices are showing moderation. He expects that “further reductions will be appropriate” to the Federal Reserve’s main policy rate, which currently sits in a range between 4.25% and 4.5%.

Earlier Thursday, regional presidents Susan Collins of Boston and Patrick Harker of Philadelphia expressed confidence that the Federal Reserve will be able to reduce rates this year, albeit at a slower pace than previously thought. At the December meeting, the FOMC estimated the equivalent of two quarter-point cuts this year, down from four expected at the September meeting.

Still, as governor, Bowman is a permanent voter on the FOMC and will have a say in policy matters this year. She is also considered a favorite to be named vice president of banking industry oversight in honor of the president-elect. donald trump takes office at the end of this month.

Speaking about the incoming administration, Bowman advised his colleagues to refrain from “prejudging” what Trump might do on issues like tariffs and immigration. The December minutes indicated concerns from officials about what the initiatives could mean for the economy.

At the same time, Bowman expressed concern about relaxing the policy too much. He cited strong stock market gains and rising Treasury yields as indications that interest rates were restraining economic activity and reducing inflation.

“In light of these considerations, I continue to prefer a cautious and gradual approach to adjusting policy,” he said.