MNI: Bowman Warns Of Fed Divergence With Other Central Banks

Federal Reserve Governor Michelle Bowman Tuesday said it will likely be "some time" before the U.S. central bank can begin lowering interest rates, warning that U.S. monetary policy over the coming months could diverge from that of other advanced economies.

"My baseline outlook continues to be that U.S. inflation will return to the FOMC’s 2% goal, with the target range of the federal funds rate held at its current level of 5.25% to 5.5% for some time," she said in prepared remarks at a Policy Exchange event in London.

Bowman said she expects U.S. inflation to remain elevated for some time, even as continued softness in consumer spending and weaker housing activity early in the second quarter also suggest less momentum in economic activity so far this year.

"Despite some further rebalancing between supply and demand, the labor market remains tight," she added. (See: MNI INTERVIEW: Fed Might Not Cut Rates Until 2025-Swanson)

DIVERGENCE

"Inflation and labor market developments in the U.S. have unfolded differently in recent quarters compared to many other advanced economies, likely reflecting a more open immigration policy and significantly larger discretionary fiscal stimulus since the pandemic," Bowman said.

"In contrast to the past two years, it is possible over the coming months that the path of monetary policy in the U.S. will diverge from that of other advanced economies, including the U.K., as the underlying economic developments and outlooks across jurisdictions exhibit greater heterogeneity."

The Fed governor said it will eventually become appropriate to "gradually lower the federal funds rate to prevent monetary policy from becoming overly restrictive," should incoming data indicate that inflation is moving sustainably toward the Fed's 2% goal. "However, we are still not yet at the point where it is appropriate to lower the policy rate."

Considering a range of possible scenarios that could unfold, Bowman said she remains willing to raise interest rates should progress on inflation stall or even reverse.