Federal Reserve Governor Michelle Bowman said on Tuesday that now is not the right time to start cutting interest rates, adding that she would be willing to raise rates if inflation does not recede.
“If incoming data show that inflation continues to move toward our 2 percent goal, it will ultimately be appropriate to gradually lower the federal funds rate to prevent monetary policy from becoming overly restrictive,” Bowman said in remarks prepared for the London speech. “However, we are not yet at the point where we can appropriately lower policy rates.”
The comments reflected the general sentiment at the Fed, with most policymakers saying in recent weeks that while they still expect inflation to return to the Fed’s 2% target, they need more evidence.
Recent data shows inflation is slowing, with the Fed’s preferred indicator just under 3%. However, the rate-setting Federal Open Market Committee noted after its last meeting that only “modest further progress” had been made.
Bowman, one of the most hawkish of all policymakers, noted that there are now “many upside risks” that could accelerate her outlook.
“If progress is made to stall or even reverse inflation, I remain willing to raise the target range for the federal funds rate at future meetings,” she said. “Given the risks and uncertainties in the economic outlook, I am considering changes to the policy stance going forward.” Will remain cautious.”
The U.S. Commerce Department on Friday will release readings for May’s personal consumption expenditures price index, the Federal Reserve’s preferred inflation gauge. Economists surveyed by Dow Jones expected 12-month inflation in all items and core (excluding food and energy prices) to be 2.6%.
While that would be a decrease from April, Bowman said she still expects the Fed to keep its key overnight borrowing rate in a range of 5.25%-5.50% “for some time.”
Additionally, she said she was not affected by interest rate cuts by global peers such as the European Central Bank, which recently cut its key interest rate by a quarter of a percentage point. “The path of U.S. monetary policy may differ from that of other developed economies in the coming months,” Bowman said.
In other Fed news on Tuesday, Governor Lisa Cook expressed optimism that inflation will show more significant progress in 2025, allowing the Fed to lower interest rates at some point.
“As inflation makes significant progress and the labor market gradually cools, it will be appropriate at some point to lower the level of policy restrictions to maintain a healthy balance in the economy,” Cook told the Economic Club of New York.
Cook said she was optimistic that inflation will fall and supply and demand in the labor market are balancing out, but she noted that risk factors still exist. These include higher credit card delinquency rates and tighter credit conditions, as well as difficulties assessing economic data that continues to significantly revise.
The comments from the two officials came after other policymakers said on Monday they were hesitant to cut interest rates.
San Francisco Fed President Mary Daly rejected the idea of ​​preemptively cutting interest rates to hedge against a deteriorating labor market and an economic slowdown.
“I do think when you see the risk, you make preemptive cuts,” Daley told CNBC’s Deirdre Bosa at a public event in San Francisco. “We will stand firm until the job is done. That is why it is so important not to take preemptive action when it is not necessary.”
Separately, Chicago Fed President Austen Goolsby told CNBC’s Steve Risman earlier Monday that if he saw “more months” of good inflation data, then he would question whether policy It needs to be as strict as before to pave the way for rate cuts.
As governors, Cook and Bowman are permanent voters on the FOMC. Daley also received a vote this year, while Goolsby did not, although he did speak out at the meeting and presented his predictions to the committee
A “dot plot” grid of interest rate expectations and a summary of economic forecasts.
