Fed Governor Makes Ominous Statement On Inflation

A member of the Board of Governors of the Federal Reserve System warned that inflation progress appears to have slowed and could put expected interest rate cuts in jeopardy.

Michelle W. Bowman made the statement on Wednesday morning meeting of the Forum Club of the Palm Beaches.

Bowman dissented on the size of the September rate cut and continues to worry about the risks of cutting too much too quickly.

"With inflation continuing to hover well above our 2 percent goal, I saw the risk that the Committee's large policy action might be interpreted as a premature declaration of victory on our price-stability mandate," she said.

"In addition, with the U.S. economy remaining strong, moving the policy rate down too quickly, in my view, would carry the risk of stoking demand unnecessarily and potentially reigniting inflationary pressures."

She says that while there has been considerable progress in lowering inflation since early 2023, the progress seems to have stalled in recent months.

The 12-month measure of core personal consumption expenditures inflation—which excludes food and energy prices—has moved sideways at around 2.7 percent since May, she noted.

The latest consumer and producer price index reports also point to a similarly elevated or even higher reading for October, according to Bowman.

"I see greater risks to the price stability side of our mandate, especially while the labor market remains near full employment, but it is also possible that we could see a deterioration in labor market conditions," she said.

Bowman, the longest current serving member of the board, says her estimate of the neutral policy rate is much higher than it was before the pandemic and says the current rate may be closer to a neutral policy stance than thought.

"I would prefer to proceed cautiously in bringing the policy rate down to better assess how far we are from the end point," she said. "While recognizing that we have not yet achieved our inflation goal and closely watching the evolution of the labor market."