Michelle Bowman, a key figure at the U.S. Federal Reserve, voiced her support for the recent reductions in interest rates at a meeting of the Exchequer Club held in Washington D.C. on Feb. 21, 2024. However, she emphasized that there was no need for further cuts at this point in time.
Addressing a gathering of bankers in California, Bowman highlighted her worries about inflation remaining higher than the Federal Reserve’s target of 2%. She believes the small cut in interest rates from December should be the last for the present cycle.
Bowman, known for her measured approach to monetary policy and regulation, stated that she backed the policy change in December. She believes this was the last necessary adjustment in the Federal Open Market Committee’s policy correction phase. She added that she sees the current policy rate as nearly “neutral,” neither promoting nor hindering growth.
Despite the strides that have been made, Bowman expressed concern about potential inflationary pressures. The Federal Reserve’s preferred inflation metric recorded a rate of 2.4% in November, but when food and energy were excluded, the core measure was at 2.8%, which officials regard as a better long-term indicator.
Bowman’s comments were made in the wake of the release of the minutes from the FOMC’s December meeting. While other members also expressed concern about inflation, most were optimistic that it would gradually return to the 2% target by 2027. Throughout the final quarter of 2023, the Federal Reserve had reduced its main lending rate by a full percentage point.
However, Bowman’s views were not universally shared among her peers. Other Federal Reserve speakers this week, including Governor Christopher Waller and regional Presidents Susan Collins and Patrick Harker, held differing opinions.
While Bowman is known for her hawkish stance favoring higher interest rates to curb inflation, Waller was more positive about inflation in his speech in Paris. He believes that estimated prices inflating the data will reduce, leading to moderation in observed prices. He also anticipates further cuts in the Federal Reserve’s main policy rate, currently between 4.25%-4.5%.
Bowman, who is a permanent voter on the FOMC and a potential favorite for the position of vice chair of supervision for the banking industry under the incoming Trump administration, urged her colleagues not to anticipate Trump’s decisions on matters such as tariffs and immigration. She also warned against easing policy too much, pointing to the rising stock market and Treasury yields as signs that interest rates were keeping economic activity in check and suppressing inflation.
Bowman concluded by advocating a careful and gradual approach to policy adjustments.
