Federal Reserve Governor Bowman explains why she cast a dissenting vote: Inflation has not reached the target yet!

After the Fed's rate cut, the only dissenting member stated, "A smaller rate cut is a better choice because inflation has not yet fallen to the Fed's target of 2%."

Fed Governor Bowman stated in a statement last Friday, "I believe that a larger policy action by the committee may be interpreted as a premature declaration of victory in achieving our price stability target, as we have not yet reached the inflation target."

Bowman was the only dissenting member in last Thursday's Fed rate policy decision, stating that she preferred a 25 basis point rate cut rather than 50 basis points. She cast her first dissenting vote in two years and was the first Fed governor to do so since 2005.

Bowman stated last Friday that she agrees the Fed needs to cut rates, but she believes that "moving towards a more neutral policy stance at a 'slow and steady pace' will ensure further progress in pushing inflation down to our 2% target." She added that this approach "will also avoid unnecessarily stimulating demand."

Fed Chair Powell argued at a press conference with reporters on Thursday that the larger 50 basis point rate cut was to preempt a cooling job market as inflation is declining. According to the meeting minutes, some officials even hoped for an earlier rate cut at the Fed's July meeting.

"We don't think we're behind," he said. "We think this is timely, but you can see it as a signal that we are committed not to fall behind."

Powell acknowledged Bowman's dissenting opinion but also stated that the rate cut is "broadly supported," and there is "a lot of consensus" among him and other policymakers.

In defending the case for a smaller rate cut, Bowman pointed out in her statement that the U.S. economy remains strong, with "solid potential growth" and a job market close to full employment.

She added that while hiring seems to have slowed, layoffs are still rare. She believes that normalizing the job market is necessary to help wage growth align with the pace of 2% inflation, given the trend in productivity growth.

However, it is clear that Powell will have to address internal divisions within the Fed on the future path of rate cuts.

FOMC's expectations for additional rate cuts this year are almost unanimous, with 7 policymakers supporting another 25 basis point cut by the end of the year, and 9 members supporting an additional 50 basis point cut. Only two policymakers do not expect further rate cuts.

This path suggests that some officials may support a 25 basis point rate cut this week, but they are cautious to avoid further deterioration in the job market. Bowman said last Friday:

"I respect and appreciate my colleagues' preference for starting with a larger initial rate cut. I remain committed to working with my colleagues to ensure that monetary policy is in the right place."