MNI: Fed’s Bowman Sees Chance Of More Rate Hikes

The Federal Reserve could need to keep interest rates on hold for longer than expected and even potentially raise them again if disinflation stalls or reverses, Governor Michelle Bowman said Friday.

“While it is not my baseline outlook, I continue to see the risk that at a future meeting we may need to increase the policy rate further should progress on inflation stall or even reverse,” Bowman said in prepared remarks. (See MNI INTERVIEW: Fed Not Restrictive, Could Need To Hike More-Levin)

Bowman said if progress on inflation resumes and looks sustainable then it may be appropriate to begin cutting interest rates at some point. But she doesn’t think conditions are in place yet and sees upside inflation risks such as geopolitics and housing.

“Should the incoming data continue to indicate that inflation is moving sustainably toward our 2% goal, it will eventually become appropriate to gradually lower the federal funds rate to prevent monetary policy from becoming overly restrictive,” she said.

Bowman raised the possibility neutral interest rates have risen in such a way that borrowing costs will need to fall less than could be expected.

“Given potential structural changes in the economy, like higher investment demand relative to available savings, 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. If that is the case, fewer rate cuts will eventually be appropriate to return our monetary policy stance to a neutral level,” she said.