Federal Reserve Governor Michelle Bowman said Tuesday that now is not yet the right time to start reducing interest rates. She added that she would be willing to raise rates if inflation did not decline.
In a prepared speech in London, Bowman said: “Should incoming data indicate that inflation is moving sustainably towards our 2% target, it will eventually become appropriate to gradually lower the federal funds rate to prevent that monetary policy becomes excessively restrictive. However, we are not yet at the point where it is appropriate to lower the key rate.”
Bowman’s comments reflect the prevailing sentiment at the central bank, where most policymakers have expressed the need for more evidence before expecting inflation to return to the Fed’s 2% target.
Recent data show inflation moderating, with the Fed’s preferred gauge slightly below 3%. However, the Federal Open Market Rate-Setting Committee noted after its last meeting that only “modest further progress” had been made.
Bowman highlighted “a number of upside risks” that could accelerate his outlook, which is among the most hawkish of any policymaker.
He said: “I remain open to increasing the target range for the federal funds rate at a future meeting should inflation progress to stall or even reverse. Given the risks and uncertainties surrounding my economic outlook, I will remain cautious in my approach when considering future changes in political stance.”
The Commerce Department will release the May Personal Consumption Expenditures Price Index, the Fed’s preferred inflation gauge, on Friday. Economists polled by Dow Jones expect a 12-month inflation rate of 2.6% for both all items and ‘core index, which excludes food and energy prices.
While this represents a slight decline from April, Bowman still expects the Fed to keep its key overnight interest rate in a range of 5.25% to 5.50% for the foreseeable future.
She also indicated that she would not be swayed by rate cuts from other global central banks, such as the European Central Bank, which recently lowered its key rate by a quarter of a percentage point. Bowman said that “it is possible that the path of monetary policy in the United States will diverge from that of other advanced economies in the months ahead.”
In other news from the Fed, Governor Lisa Cook expressed optimism that inflation will show more significant gains in 2025, allowing for a potential rate cut.
“With significant progress on inflation and a gradual cooling of the labor market, at some point it will be appropriate to reduce the level of policy tightening to maintain a healthy balance in the economy,” Cook said at an event at the Economic Club of New York.
While Cook expressed optimism about lower inflation and a better balance in the labor market, he also acknowledged the presence of risk factors. These include higher credit card delinquency rates, tighter credit conditions and challenges in evaluating economic data that have undergone significant revisions.
The statements from Bowman and Cook follow those made Monday by other officials expressing reluctance to implement rate cuts.
San Francisco Fed President Mary Daly has rejected the idea of preemptive cuts to protect against a weakening labor market and slowing economy. Daly stressed the importance of completing the work in progress and not taking unnecessary preemptive action.
Additionally, Chicago Fed President Austan Goolsbee said that if he saw more months of favorable inflation data, he would question whether policy should remain as tight as it has been, potentially paving the way for rate cuts.
Governors Cook and Bowman are permanent electors of the Federal Open Market Committee (FOMC), while Daly will have a vote this year, and Goolsbee, while not an elector, attends meetings and sends forecasts to the committee.
