Federal Reserve Governor Michelle Bowman stated that interest rates may need to move higher to control inflation, going against the cuts that her fellow officials have indicated. She emphasized the need for caution in easing policy too quickly, as it could result in a rebound in inflation. While she believes that eventually lowering rates may be appropriate, Bowman sees a number of potential upside risks to inflation that need to be considered before making any decisions.
As a member of the Board of Governors and a permanent voting member of the rate-setting Federal Open Market Committee, Bowman has been more hawkish in her approach towards containing inflation since taking office in 2018. She emphasized the possibility of needing to increase the policy rate further should progress on inflation stall or reverse in the future. Despite stating that it may become appropriate to lower rates eventually, she believes that there are still upside risks to inflation that must be taken into account.
In her speech to the Shadow Open Market Committee, Bowman highlighted the near-term future of Fed policy, which has left markets on edge. Chair Jerome Powell and other officials have indicated a cautious approach to cutting rates, with Atlanta Fed President Raphael Bostic suggesting one cut this year, and Minneapolis Fed President Neel Kashkari indicating no cuts if inflation does not decelerate further. Despite markets pricing in three cuts this year, there is uncertainty regarding when they will start, with a close call between June and July.
Bowman expressed the need to closely watch the data and assess the appropriate path of monetary policy given the risks and uncertainties in the economic outlook. She mentioned supply-side improvements, geopolitical risks, fiscal stimulus, higher housing prices, and labor market tightness as potential upside risks to inflation. Inflation readings over the past two months have indicated that progress may be slower going forward, especially for core services, which needs to be considered in future policy decisions.
The next look at inflation data will come on Wednesday when the Labor Department releases the March consumer price index report. Bowman’s remarks suggest a cautious approach to considering future changes in the stance of policy, emphasizing the importance of closely monitoring data and remaining vigilant in assessing the appropriate path of monetary policy. In conclusion, Bowman’s speech highlights the potential need for higher interest rates to control inflation and the importance of taking into account the various risks and uncertainties in the economic outlook when making policy decisions.
