Global: Fed’s Bowman says Rate Cuts Possible If Inflation Trends Continue

Federal Reserve Governor Michelle Bowman adjusted her typically hawkish stance on Saturday, acknowledging recent positive developments in inflation while still expressing concerns about its current level, which remains “uncomfortably above” the Fed’s 2% target.

“In the event that inflation trends continue to move sustainably towards our 2% goal, it will be appropriate to consider gradual reductions in the federal funds rate to avoid overly restrictive monetary policy that could impact economic activity and employment,” Bowman stated in prepared remarks for a closed Kansas Bankers Association meeting. “However, we must be patient and avoid overreacting to individual data points that could jeopardize the ongoing progress in reducing inflation.”

At the end of July, the Fed maintained its policy rate within the 5.25%-5.50% range, where it has been for over a year, but hinted that a rate cut might be considered as early as September if inflation shows continued signs of easing. The Fed’s preferred inflation gauge, the personal consumption expenditures (PCE) price index, showed a year-over-year increase of 2.5% in June.

Bowman’s comments did not rule out the possibility of a rate cut next month. She noted that by the time of the September meeting, the Fed would have access to additional economic data and a clearer understanding of how recent financial market volatility might influence the economic outlook.

While Bowman did not repeat her previous position on potentially raising rates if necessary, she remained cautious as the Fed approaches the decision on interest rate adjustments.

Bowman reiterated her expectation that inflation will continue to decline with the current monetary policy, though she expressed doubt that price pressures will subside as quickly this year as they did in the past year.

She noted that although the risks to the Fed’s dual objectives of price stability and full employment are becoming more balanced, her primary concern remains inflation. The rise in the unemployment rate to 4.3% in July, the highest in nearly three years, may not fully reflect the cooling in the labor market, she said. Factors such as low layoffs and the temporary impact of Hurricane Beryl on job growth were also noted.

Bowman also pointed out that geopolitical tensions and other risks could further increase prices. “Given the upside risks to inflation, it is crucial to remain vigilant about price stability while monitoring for potential significant weakening in the labor market,” she concluded.