MNI: Fed Must Avoid Undermining Progress On Inflation - Bowman

Federal Reserve Governor Michelle Bowman Saturday said inflation remains uncomfortably above the central bank's 2% goal and advocated the central bank remain patient and assess incoming data to avoid undermining progress on its price-stability target.

"The progress in lowering inflation during May and June is a welcome development, but inflation is still uncomfortably above the Committee’s 2% goal," she said according to prepared remarks. The latest labor market report showing the unemployment rate at 4.3% in July "although notably higher than a year ago" is "still a historically low unemployment rate."

Bowman said her baseline outlook is that inflation will decline further "with the current stance of monetary policy" and should data show inflation moving sustainably toward the central bank's 2%, "it will become appropriate to gradually lower the federal funds rate."

"By the time of our September meeting, we will have seen a range of additional economic data and information, including one employment and two inflation reports," Bowman said in a speech to the Kansas Bankers Association. "We will also have a wider view of how developments in broader financial conditions might influence the economic outlook. In particular, equity prices have been volatile recently but are still higher than at the end of last year."

PATIENCE

The Fed needs to be patient and "avoid undermining continued progress on lowering inflation by overreacting to any single data point," she said, referring to the July jobs report. "With some upside risks to inflation, I still see the need to pay close attention to the price-stability side of our mandate while watching for risks of a material weakening in the labor market." (See: MNI INTERVIEW: Fed To Wait For Sept Despite Jitters - Stein)

Core PCE inflation averaged an annualized 3.4% over the first half of the year, Bowman said, and she is "not confident that inflation will decline in the same way as in the second half of last year."

The labor market is showing signs it is coming into better balance but wage gains are still above the pace consistent with the Fed's inflation goal, she said.

The labor market has not been as strong as the payroll data have been indicating, Bowman said, pointing to the Q4 QCEW report. But it also appears that the recent rise in unemployment may be exaggerating the degree of cooling in labor markets because the rise centered in workers experiencing a temporary layoff due to weather, she said.