Fed's Bowman: Core inflation rate still "alarmingly" above target

Federal Reserve Board Governor Bowman said on Monday: "The progress made in reducing inflation since April is a welcome change, but core inflation remains uncomfortably above the Federal Open Market Committee's target of 2%."

At the most recent FOMC meeting on September 17-18, Bowman was the sole dissenter, leaning towards a 25 basis point rate cut rather than lowering the federal funds rate target range by 50 basis points to 4.75%-5.00%, which was the FOMC's decision.

Since the decision on September 18, she explained that a 50 basis point rate cut could be seen as the Fed prematurely declaring victory over inflation. Alternatively, this could also be seen as the FOMC recognizing greater downside risks to the economy, she reiterated this view in a speech prepared for the Georgia Bankers Association on Monday.

She said on Monday: "In my view, starting a rate cut cycle with a 25 basis point move will better solidify the robustness of the economic conditions, while also confidently acknowledging the progress we have made towards our goals."

She stated that due to pent-up demand and off-balance sheet funds, "rapidly lowering policy rates carries the risk of releasing this pent-up demand, a more cautious approach will also avoid unnecessary demand stimulus and may rekindle inflationary pressures."

Bowman also noted that her estimate of the neutral rate, the rate level that neither stimulates nor hinders economic growth, is much higher than pre-pandemic levels. "With a higher estimate of the neutral rate, we will reach our target faster for any specific rate cut pace."

She remains vigilant about inflation risks. Bowman pointed out, "Global supply chains remain vulnerable to labor strikes and escalating geopolitical tensions, which could lead to inflationary effects in food, energy, and other commodity markets."

Regarding the labor market, Bowman noted that the U.S. labor market has moved away from the extreme tightness of the past few years. The ratio of job openings to unemployed workers has further decreased, slightly below the historical highs before the pandemic, indicating a better balance between the number of available workers and available jobs. However, job openings still outnumber the labor force, a situation that has only occurred twice since World War II before 2018, further indicating that the labor market continues to strengthen.

The rise in the U.S. unemployment rate largely reflects weak hiring, as job seekers entering or re-entering the labor market take longer to find work, and layoffs remain rare. In addition to a cooling in labor demand, other factors may contribute to the rise in the unemployment rate. Mismatch between the skills of new workers and existing jobs may further push up the unemployment rate, indicating that the rise in the unemployment rate is partly due to an increase in labor supply. It is also possible that some temporary factors have led to the recent increase in the unemployment rate, such as a sharp rise in the unemployment rate among eligible teenage workers in August Finally, Bauman stated that she and her colleagues will make decisions step by step based on the upcoming data release and the dual mandate of the Federal Reserve for full employment and price stability guiding the economic outlook