On Wednesday (November 20) local time, Federal Reserve Governor Bowman called for continued caution on further interest rate cuts, as progress in reducing inflation has slowed and the job market is strong.
Speaking at the Florida Palm Beach Forum Club on Wednesday, Bowman said, "In the absence of an inflation target, I prefer to cut the policy rate cautiously to better assess our distance from the ultimate goal, while keeping a close eye on changes in the labor market." "
The Fed kicked off its much-anticipated easing cycle with a 50 basis point rate cut in September, followed by a 25 basis point cut in November, and the target range for the federal funds rate was lowered to 4.5%-4.75%.
It is worth mentioning that Bowman opposed the Fed's 50 basis point rate cut in September, and she was the only official who opposed the 50 basis point cut at that rate meeting, and she was also the first Fed governor to vote against the interest rate decision since 2005. However, Bowman is in favor of the decision to cut interest rates by 25 basis points this month.
In the Federal Open Market Committee (FOMC), Bowman is the most hawkish official.
Markets are currently pricing in a more than 50% chance of another rate cut by the Fed in December, but Bowman's speech suggests that she may not support further rate cuts if the labor market remains strong and the decline in inflation stalls.
The Fed's next meeting is scheduled for December 17-18, ahead of which policymakers will review November's inflation and employment data.
"We have made significant progress in reducing inflation since the beginning of 2023, but progress appears to have stalled in recent months," Bowman said.
Bowman believes that the neutral rate is much higher today than it was before the pandemic. "So we're probably closer to a neutral policy stance than we currently think," she said.
A neutral interest rate is a level of interest rates that neither stimulate nor suppress the economy.
"Until the price stability objective is achieved, we cannot rule out the risk that the policy rate may reach or even fall below the neutral level," Bowman added. "
A neutral interest rate is a level of interest rates that neither stimulate nor suppress the economy.
"Until the price stability objective is achieved, we cannot rule out the risk that the policy rate may reach or even fall below the neutral level," Bowman added. "
She noted that the core personal consumption expenditures (PCE) price index year-on-year growth has been hovering around 2.7% since May, while preliminary data suggests that progress in October may also be limited.
The core PCE price index is the preferred inflation measure for Fed officials, and policymakers' so-called long-term inflation target of 2% is based on the core PCE data.
Bowman said she would keep an eye on new data ahead of the December meeting and meet with a wide range of stakeholders to assess the appropriateness of the current policy stance.