Federal Reserve Governor Bowman "hawkish": Will remain cautious about further interest rate cuts!

Federal Reserve Governor Bowman said that the Fed should lower interest rates at a "moderate" pace, as she believes that inflation risks still exist and there are no significant signs of weakness in the labor market. Bowman stated that she will continue to take a cautious approach to further rate cuts.

Speaking to the Kentucky Bankers Association on Tuesday, Bowman said, "When it comes to the risks of achieving our dual mandate, I continue to believe that there are greater risks to price stability, especially as the labor market continues to approach estimates of full employment."

These remarks highlight the differences between Bowman and other Fed officials who have recently described the risks of achieving the Fed's two goals - full employment and stable inflation - as roughly balanced or leaning towards employment.

Bowman opposed the Fed's decision to cut rates by 50 basis points last week - she prefers a smaller rate cut - making her the first dissenting Fed governor since 2005.

She stated on Tuesday that her preference for a more "moderate" approach to the Fed's rate cut cycle is based on several considerations.

She said, "In my view, starting the rate cut cycle with a 25 basis point cut will better reinforce the strength of the economic conditions and also confidently acknowledge the progress we are making towards our goals."

Fed Chair Powell emphasized that larger rate cuts are aimed at maintaining a strong labor market, calling it an adjustment to ensure that the Fed does not fall behind.

Bowman noted that she appreciated Powell's direct response to her concerns at the press conference, that significant actions may inadvertently convey concerns about the underlying economic conditions or lead market participants to expect such a pace to continue in the future.

Bowman said, "I won't draw too many signals from recent labor market data unless there are clear trends indicating that spending growth and the labor market have significantly deteriorated." She said that wage growth indicates that the labor market remains tight, and recent increases in the unemployment rate may be due to temporary factors.

However, if data show substantial weakness in the job market, Bowman said she "will support taking action and adjusting monetary policy according to our inflation mandate."

She stated that core inflation, excluding the volatile food and energy categories, is still "alarmingly" above the Fed's 2% target.

She said, "By moving towards a more neutral policy stance at a moderate pace, we will be better positioned to make further progress towards lowering inflation to the 2% target, while closely monitoring changes in the labor market conditions."

Updated forecasts show that while most officials support another 50 basis point rate cut at the last two meetings of this year, there is disagreement among policymakers on the future path: 7 out of 19 officials expect only a 25 basis point cut in 2024, while two oppose further action this year.

Bowman said on Tuesday that her estimate of the neutral policy rate - a rate that neither stimulates nor restricts the economy - is much higher than before the pandemic.

She said, "With a higher neutral estimate, we will reach our destination faster at any given rate cut speed."