Fed's Bowman Sees Risks Weighted Toward Inflation Concerns

By Matt Grossman

Federal Reserve governor Michelle Bowman said that she believes the risk of persistent inflation still outweighs potential weakness in the labor market, in remarks that sought to justify her dissenting vote against the Fed's large rate cut last week.

Speaking at the annual convention of the Kentucky Bankers Association in Hot Springs, Va., Bowman said Tuesday that the economy remains strong and that price increases have stayed uncomfortably higher than the Fed's 2% annual target. She reiterated that she would have preferred a smaller quarter-point rate reduction at last week's meeting, the first time the central bank cut borrowing costs since 2020.

"I continue to see greater risks to price stability, especially while the labor market continues to be near estimates of full employment," Bowman said.

Cutting rates too quickly could amount to a "premature declaration of victory" if the easing fuels more borrowing that supports too fast economic expansion, Bowman said.

"There continues to be a considerable amount of pent-up demand and cash on the sidelines ready to be deployed," Bowman said. "Bringing the policy rate down too quickly brings the risk of releasing that pent-up demand."

Bowman's dissenting vote last week was the first by a Fed governor since 2005.

Bowman said she was also concerned that the half-point cut could have signaled to markets that the Fed fears the economy is weakening quickly, and that it plans a series of further half-point cuts to ease its policy stance rapidly.

Bowman said she was pleased that Fed Chair Jerome Powell helped dispel those notions in his press conference last week. The yield on the 10-year Treasury note has climbed since the Fed announced the rate cut, indicating the decision hasn't prompted markets to anticipate lower benchmark borrowing costs in the long run.

Traders' bets indicate roughly 50-50 odds that the Fed will choose another half-point rate cut at its next meeting in November, versus opting for a smaller quarter-point reduction, per CME Group's tracker.

Write to Matt Grossman at matt.grossman@wsj.com

(END) Dow Jones Newswires

September 24, 2024 10:20 ET (14:20 GMT)

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