Federal Reserve Governor Bowman remains cautious about interest rate cuts and does not buy into the idea of a rate cut in September

Federal Reserve Governor Michelle Bowman said on Tuesday that she remains cautious about any changes in Fed policy, as she believes inflation still faces upward risks and warned that an overreaction to any single data point could jeopardize progress already made.

Speaking at a bankers' gathering in Alaska, Bowman delivered a prepared speech, reflecting that she remains one of the more hawkish decision-makers at the Federal Reserve.

While she did not explicitly state, as she has in the past, that she is prepared to further raise rates if necessary, she has hardly indicated that she is ready to support a rate cut at the Fed's September 17-18 meeting. The current market expectation is for a rate cut by the Fed in September.

She stated that under the current policy stance, the inflation rate should continue to decline, and if inflation continues to fall towards the Fed's 2% target, "gradually lowering the federal funds rate would become appropriate to prevent monetary policy from overly restricting economic activity and employment."

However, Bowman said, "We need to remain patient and avoid overreacting to any single data point, which could disrupt the ongoing progress in reducing inflation." This clearly refers to several Fed officials changing their focus following the July employment report showing a slowdown in hiring and the unemployment rate rising to a high of 4.3%.

She noted that the inconsistency in the latest employment report is cause for concern, as while last year's hiring strength may have been overstated, the rise in the unemployment rate may also have exaggerated the extent to which the labor market is cooling.

"In recent years, the challenges in measurement have become greater, with the frequency and extent of data revisions increasing, making the task of assessing the current economic situation and predicting how the economy will develop more challenging."

"I will maintain a cautious stance when considering adjustments to the current policy stance," she said.

The financial markets currently fully expect the Fed to lower the benchmark interest rate from the current range of 5.25%-5.50% next month, a range that has remained unchanged since July 2023. The question lies in the magnitude of the first rate cut, with the market currently leaning towards a 25 basis point cut rather than a 50 basis point cut.

Fed Chair Powell is expected to further clarify his view on easing credit conditions after curbing the most severe inflation outbreak in 40 years in a speech at the Jackson Hole conference on Friday. Fed policymakers hope that the rate cut measures can be implemented in a timely manner to achieve the textbook-style "soft landing" that has been formed so far, with inflation slowing down and the unemployment rate not sharply rising