MNI: Bowman Remains Open To Further Fed Hikes

Federal Reserve Governor Miki Bowman remains willing to support raising the federal funds rate at a future meeting should data indicate progress on inflation has stalled or is insufficient to bring inflation down to 2% in a timely way.

"At our last meeting, I supported the FOMC’s decision to hold the target range for the federal funds rate at the current level as we continue to assess incoming information and its implications for the outlook," she said in prepared remarks. "But my baseline economic outlook continues to expect that we will need to increase the federal funds rate further to keep policy sufficiently restrictive to bring inflation down to our 2 percent target in a timely way."

"However, monetary policy is not on a preset course, and I will continue to closely watch the incoming data as I assess the implications for the economic outlook and the appropriate path of monetary policy," she added in a speech to the Utah Bankers Association. (See: MNI POLICY: Fed Likely Done Hiking, Focused On Length Of Hold)

Much of the improvement in inflation over the past year has been due to supply-side improvements, such as improving supply chains, increases in labor force participation, and lower energy prices, she said. "It is unclear whether further supply-side improvements will continue to lower inflation."

"In my view, there is also a risk that over the coming months higher energy prices could reverse some of the recent progress made by supply-side improvements to bring overall inflation down."

HIGHER LONG-TERM RATE?

Bowman pointed to uncertainties around labor supply, the impact from pandemic-era learning losses, the composition of spending and whether it will continue to contribute to inflation, and the impact from excess savings. (See: MNI INTERVIEW: US Consumer Savings To Underpin Demand Into '24)

"Given all of the considerations I have just discussed, it is not yet clear whether the appropriate level of the federal funds rate will need to remain at a higher level than before the pandemic in order to effectively foster low and stable inflation and support full employment," she said.

"In my view, given potential structural changes in the economy, such as higher demand for investment relative to saving, it is quite possible that the level of the federal funds rate consistent with low and stable inflation will be higher than before the pandemic," Bowman said.