U.S. Federal Reserve Governor Michelle Bowman speaks at the Exchequer Club meeting in Washington, DC, U.S., Wednesday, February 21, 2024.
Kent Nishimura | Bloomberg | Getty Images
Federal Reserve Governor Michelle Bowman said Tuesday that the time is not yet right to start lowering interest rates, adding that she would be open to a hike if inflation does not decline.
“If available data indicate that inflation is sustainably trending toward our 2% goal, it will ultimately become appropriate to gradually lower the federal funds rate to prevent monetary policy from becoming too restrictive,” Bowman said in prepared remarks. for a speech in London. “However, we are not yet at the point where it is appropriate to lower the policy rate.”
The comments reflect a prevailing sentiment within the central bank, in which most policymakers have said in recent weeks that while they still expect inflation to return to the 2% target Fed, they need more proof.
Recent figures have shown a moderation in inflation, with the Fed’s preferred gauge sitting just below 3%. However, the Federal Open Market Committee, which sets rates, noted after its latest meeting that progress had been only “modest.”
Bowman noted that there are “a number of upside risks” that could accelerate his outlook, which is among the most hawkish of any policymaker.
“I remain willing to raise the target range for the federal funds rate at a future meeting if inflation stagnates or even reverses,” she said. “Given the risks and uncertainties regarding my economic outlook, I will remain cautious in my approach to considering future changes in policy direction.”
The Commerce Department will release its May Personal Consumption Expenditures Price Index figure, the Fed’s preferred inflation gauge, on Friday. Economists surveyed by Dow Jones expect a 12-month inflation rate of 2.6% for both the overall and core economy, which excludes food and beverage prices. energy.
Although that would represent a drop from April, Bowman said she still expects the Fed to keep its overnight policy rate in a range between 5.25% and 5.5% “for some time “.
Additionally, she indicated that she was not influenced by rate cuts from the Fed’s global counterparts, such as the European Central Bank, which recently lowered its key rates by a quarter of a percentage point . Bowman said that “it is possible that in the coming months U.S. monetary policy will diverge from that of other advanced economies.”
Bowman’s remarks join those of other officials who said Monday that they are reluctant to cut spending.
San Francisco Fed President Mary Daly rejected the idea of preemptively cutting interest rates to guard against a deteriorating job market and slowing economy.
“I think preemptive mitigation is something you do when you see risks,” Daly told CNBC’s Deirdre Bosa at a public event in San Francisco. “We will remain determined until we finish the job. This is why it is so important not to take preventative measures when it is not necessary.”
Separately, Chicago Fed President Austan Goolsbee told CNBC’s Steve Liesman earlier in the day that if he saw “several months” of good inflation data, he would then question whether policy should be as tight as it has been, opening the door to cuts.
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