Fed’s Bowman not quite sold on a September rate cut

Federal Reserve Board Gov. Michelle Bowman said Tuesday she is not quite ready to sign off on an interest rate cut at next month’s Federal Open Market Committee meeting.

In a speech delivered to the Alaska Bankers Association, Bowman said price growth continues to be “uncomfortably” high, adding that she is concerned that inflation could begin trending up again.

“I will continue to closely watch the data and visit with a broad range of contacts as I assess economic conditions and the appropriateness of our monetary policy stance,” Bowman said. “I continue to view inflation as somewhat elevated. And with some upside risks to inflation, I still see the need to pay close attention to the price-stability side of our mandate while watching for risks of a material weakening in the labor market.”

Since the Fed began tightening its monetary policy in March 2022, the FOMC has voted unanimously on every policy move and statement. Bowman has positioned herself as one of the more hawkish — or inflation-wary — members of the committee, extolling the importance of maintaining higher interest rates for a longer period of time.

Bowman’s latest comments come as market participants broadly expect the FOMC to lower rates by at least a quarter of a percentage point during its Sept. 18 meeting. More than 70% of interest rate traders are anticipating a 25-basis-point cut next month, according to CME Group’s FedWatch tool, while the remaining 30% are betting on a half-point reduction.

Following the FOMC’s meeting last month, Fed Chair Jerome Powell laid the groundwork for easier monetary policy. He said the consensus among the committee’s members was that “the economy is moving closer to the point at which it will be appropriate to reduce our policy rate.” 

Subsequent economic data releases, including a weaker-than-expected jobs report two days after the meeting and a better-than-anticipated inflation reading last week, bolstered the broad view that a rate cut was appropriate, if not necessary.

Bowman — who was in Anchorage to discuss the Fed’s efforts to make the banking system more inclusive for indigenous peoples — acknowledged the evolving economic picture. She called the most recent inflation reading a “welcome development” and said her baseline expectation is for continued disinflation, allowing for a “gradual” lowering of rates once it is clear that price growth is on track to hit the Fed’s 2% annualized target. The most recent price indexes tracked by the Fed peg inflation at around 2.5%.

But Bowman questioned the durability of recent trends. With global supply chains back to their pre-pandemic form, she said the price declines related to supply increases will no longer offset the upward pressure on prices from geopolitical tensions, fiscal stimulus and increased demand for housing. On the employment front, she said that recent hiring trends could have been skewed downward because of Hurricane Beryl, which hit Texas and Louisiana around the time data was being collected.

At the same time, Bowman said, gathering employment data has proven to be challenging for the Bureau of Labor Statistics. She pointed to repeated downward revisions of overall job gains in recent months. Because of these various conflicting factors, she said she will need to see more data to determine the best course of action.

“My colleagues and I will make our decisions at each FOMC meeting based on the incoming data and the implications for and risks to the outlook and guided by the Fed’s dual-mandate goals of maximum employment and stable prices,” she said. “By the time of our September meeting, we will have seen additional economic data and information, including one employment and one inflation report. We will also monitor how developments in broader financial conditions might influence the economic outlook.”

Powell is set to discuss his views on the economic situation and the central bank’s inflation fight on Friday at the Federal Reserve Bank of Kansas City’s annual Jackson Hole Economic Policy Symposium.