US Federal Reserve Governor Michelle Bowman attends the “Fed Listens” event at the Federal Reserve headquarters in Washington, DC, on October 4, 2019.
Eric Baradat AFP Getty Images
Federal Reserve Governor Michelle Bowman said on Tuesday she thought her colleagues should take a more measured approach to cutting interest rates by half a percentage point last week as she worries inflation could return.
Bowman was the only dissenter from the Federal Open Market Committee’s decision to lower the benchmark interest rate for the first time in more than four years. No governor has disagreed with an interest rate decision since 2005.
In explaining his reasoning, Bowman said that half a percentage point, or 50 basis points, reduces some of the risk to the Fed’s twin goals of achieving low inflation and full employment.
The jumbo cut “can be interpreted as a premature declaration of victory over the mandate of price stability. Accomplishing our mission to return to low and stable inflation at our 2 percent target is necessary to foster a strong labor market and an economy that works for everyone. in the long term long,” he told a group of bankers in Kentucky.
Inflation by the Fed’s preferred metric is running at 2.5%, above the central bank’s 2% target. Excluding food and energy, core inflation was at 2.6%.
Although Bowman favors tapering, he favors a lower Fed rate of a quarter percentage point, more in line with traditional movements in central banks. The FOMC last cut by half a point at the start of the Covid pandemic in March 2020, and before the global financial crisis in 2008.
Bowman noted some specific concerns: that a big move would indicate that Fed officials see “some fragility or greater downside risk to the economy”; that the market can expect a series of big cuts; that a large amount of sideline cash can be implemented as falling rates, inflationary socks; and they generally feel that rates do not have to go down as much as policymakers have indicated.
“According to these considerations, I believe that, by moving quickly to a more neutral policy stance, we will be better able to achieve faster progress to reduce inflation to the target of 2 percent, while monitoring the evolution of labor market conditions,” he said.
In a recent statement, Fed officials cited slowing inflation and a weak labor market as justification for the cuts. At last week’s meeting, individual policymakers stated that they expect a half percent reduction this year and another full point in 2025. Market prices, however, are more aggressive, expecting 2 full percentage points in next year’s cuts.
The Fed’s overnight lending rate is currently targeted at 4.75%-5%.
Bowman said he respected the committee’s decision and stressed that policy was not preset and would depend on the data, which he said the labor market had softened slightly but was still strong.
“I continue to see greater risks to price stability, especially while the labor market is still close to employment estimates,” he said.
