Federal Reserve Governor Michelle Bowman has expressed her reservations about the recent interest rate cut, citing concerns that it may reignite inflation. Bowman was the sole dissenter in the Federal Open Market Committee’s decision to lower benchmark interest rates by half a percentage point, marking the first dissenting vote since 2005.
In her remarks to a bankers group in Kentucky, Bowman argued that the large cut may be perceived as a premature declaration of victory on the Fed’s price-stability mandate. She emphasized that achieving low and stable inflation is crucial for fostering a strong labor market and economy that works for everyone in the long run.
Bowman favored a more measured approach, advocating for a quarter percentage point reduction instead of the half point cut. She cited several concerns, including the potential for markets to expect a series of large cuts, the risk of stoking inflation as sideline cash is put to work, and her belief that rates won’t need to come down as much as her fellow policymakers have indicated.
The Fed’s preferred inflation metric is currently running at 2.5%, above the central bank’s 2% goal. Bowman emphasized the importance of achieving further progress in bringing inflation down to the target rate while closely monitoring labor market conditions.
Despite her dissent, Bowman respects the committee’s decision and acknowledges that policy is not on a preset course, dependent on data that has indicated a softening labor market. However, she remains concerned about the risks to price stability, particularly while the labor market remains near estimates of full employment.
The Fed’s benchmark overnight borrowing rate now stands at 4.75%-5%, with market pricing expecting more aggressive cuts in the future. Bowman’s cautionary stance serves as a reminder of the delicate balance between promoting economic growth and maintaining price stability.
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