MNI: Fed Rate Cuts Needed If Inflation Keeps Falling - Bowman

Federal Reserve Governor Michelle Bowman said Tuesday the Fed should cut interest rates if inflation continues to move towards the central bank's 2% goal, noting further welcome progress on inflation in the past couple months in spite of upside risks.

"My baseline outlook is that inflation will decline further with the current stance of monetary policy. Should the incoming data continue to show that inflation is moving sustainably toward our 2% goal, it will become appropriate to gradually lower the federal funds rate to prevent monetary policy from becoming overly restrictive on economic activity and employment," Bowman said in remarks prepared for the Alaska Bankers Association.

Bowman suggested her support for a rate cut in September is not sealed, though the progress in lowering inflation since April is a welcome development. "By the time of our September meeting, we will have seen additional economic data and information, including one employment and one inflation report. We will also monitor how developments in broader financial conditions might influence the economic outlook," she said.

The labor market continues to loosen and is coming into better balance, she said, but wage gains remain above the pace consistent with the Fed's inflation goal. The Fed at the end of July kept the policy rate in the 5.25%-5.50% range it has been for more than a year, but signaled that a rate cut could come as soon as September if inflation continued to cool. (See: MNI: Fed Rate Cut Pace Hinges Strongly On Jobs - Ex-Staff)

"We need to be patient and avoid undermining continued progress on lowering inflation by overreacting to any single data point," Bowman said. "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. My view continues to be that restoring price stability is essential for achieving maximum employment over the longer run."