MNI: Fed's Bowman Urges Cautious, Gradual Rate Adjustments
MNI (WASHINGTON) - Federal Reserve Governor Michelle Bowman on Thursday called for a cautious and gradual approach to further interest rate cuts, warning that the current stance of policy may not be providing much restraint on the economy at the same time that progress on inflation may be stalling out.
The FOMC's 100 bps in cuts since September ends its "recalibration" phase, and new data will shed light on the incoming president's policies and their effect on inflation and growth, Bowman said. She continues to see greater risk to the Fed's inflation mandate than its employment one, a view that contrasts from those of most other Fed officials who say risks to their dual mandates are close to balanced.
"Looking ahead, we should be cautious in considering changes to the policy rate as we move toward a more neutral setting. Future actions should be based on a careful assessment of ongoing and sustained progress in achieving our goals, and we must be clear in our communication about how further changes are intended to affect economic conditions," she said in prepared remarks for a bankers conference in Laguna Beach, Calif.
"I expect that the coming months should bring clarity on the incoming administration’s policies and the carry over of inflationary pressures from 2024, reflecting private spending decisions and an apparent faster spend-out of existing federal government appropriations in recent months. It will be very important to understand how these factors will affect economic activity and inflation going forward."
STICKY INFLATION
Disinflation seems to have stalled out since last spring mostly due to a slowing in core goods price declines while upside risks have risen, Bowman said. Global supply chains are still susceptible to shocks and increased geopolitical tensions could cause food, energy and other commodities prices to trend higher.
"While it is not my baseline outlook, I cannot rule out the risk that progress on inflation could continue to stall," she said.
The potential release of pent-up demand following the election of Donald Trump could also drive higher prices, she added, though urging investors to refrain from "prejudging" the incoming administration’s policies.
"We should wait for more clarity and then seek to understand the effects on economic activity, the labor market, and inflation," she said. (See: MNI INTERVIEW: Fed Won't Consider Cuts Until March - Benigno)