Fed "Hawk King" warns of rising inflation risks, implying a cautious stance on rate cuts
The "hawkish" warning from the Federal Reserve about the risk of rising inflation suggests a cautious stance on interest rate cuts. Bowman stated that the progress made in lowering inflation in May and June was welcomed, but inflation still remains above the 2% target, which is concerning. She believes that U.S. fiscal policy, immigration, and geopolitical risks could put pressure on inflation. She pointed out that the rise in unemployment is mainly due to weak hiring, and the layoff rate remains low. Bowman believes that there are risks in waiting too long to cut interest rates, and gradually lowering rates would be appropriate if inflation data continues to improve. Officials will receive new data before the September meeting
Last Friday local time, Federal Reserve Governor Bowman, known as the "hawk king," said she still believes there is an upward risk of inflation, and the labor market remains strong, indicating that she may not be ready to support a rate cut at the next meeting in September.
Speaking at the Colorado Springs Bankers Association, Bowman said, "The progress made in reducing inflation in May and June was welcome, but inflation remains significantly above the committee's 2% target, which is concerning."
She added, "I will exercise caution when considering adjusting the current policy stance." According to her, U.S. fiscal policy, immigration pressure on the real estate market, and geopolitical risks could all exert upward pressure on inflation.
The Federal Reserve's preferred inflation measure, the Personal Consumption Expenditures Price Index (PCE), has slowed to a year-on-year growth rate of 2.5% as of June. With inflation nearing the target level, many officials have shifted more attention to the labor market, which has shown signs of deterioration under high interest rate pressure.
On July 31, Federal Reserve Chairman Powell said at a press conference after the rate decision that when policymakers gather on September 17-18, a rate cut will be an option. With unexpectedly weak job data in July, economists and investors have solidified their expectations for a rate cut.
However, Bowman, who previously served as a bank regulator in Kansas, said that the recent surge in the unemployment rate to 4.3% may exaggerate the extent of the labor market cooling.
She said, "The rise in the unemployment rate this year largely reflects weak hiring, as job seekers entering the labor market take longer to find work, while the layoff rate remains low."
Bowman acknowledged the risk of waiting too long to cut rates. She stated that if inflation data continues to improve, "gradually lowering the federal funds rate to prevent monetary policy from becoming too tight" would be appropriate.
She also emphasized that officials will receive a series of new data before the September meeting, including an employment report and two inflation reports