Not Ready to Cut Rates, “Willing to Raise”: Fed’s Bowman

Federal Reserve Governor Michelle Bowman stated that the Fed is still not ready to begin loosening monetary policy, and that she is “willing to raise the target range for the federal funds rate at a future meeting should progress on inflation stall or even reverse.”

Bowman, one of the Fed’s most hawkish members, said at the Policy Exchange in London that the Fed has made “only modest further progress” on inflation in 2024. Her baseline assessment anticipates that U.S. inflation will return to the Fed’s 2% target, with the federal funds rate target range remaining at 5.25%-5.50% “for some time.”

If data show that inflation is steadily heading toward the Fed’s 2% target, “it will eventually become appropriate to gradually lower the federal funds rate,” she said, adding that “we are still not yet” there.

“Given the risks and uncertainties regarding my economic outlook, I will remain cautious in my approach to considering future changes in the stance of policy,” she said.

Bowman expected that U.S. monetary policy will deviate from other advanced countries due to disparities in inflation and labor market conditions, “likely reflecting a more open immigration policy and significantly larger discretionary fiscal stimulus since the pandemic.”

She also claimed that supply-side improvements are unlikely to persist because both supply chains and labor force participation rates have recently stabilized, and that geopolitical concerns could drive inflation higher. Furthermore, she stated that inflation may accelerate if the labor market remains tight and financial conditions relax, resulting in higher demand.

Bowman’s economic predictions for the rest of the year do not include any interest rate cuts in 2024, she stated in the Q&A portion. Rather, she postponed the cuts she had previously penciled in until 2025.