The Fed decision's lone dissenter worries the bigger rate cut sends a 'premature victory' message to markets

By Greg Robb

Michelle Bowman was the first Fed governor to dissent from an interest-rate decision since 2005

The only Federal Reserve official to dissent from the central bank's aggressive half-point interest-rate cut earlier this week said she thought it would send the wrong message to markets that inflation was dead.

"Although it is important to recognize that there has been meaningful progress on lowering inflation, while core inflation remains around or above 2.5%, I see the risk that the Committee's larger policy action could be interpreted as a premature declaration of victory on our price stability mandate," Bowman said Friday in a statement explaining her vote.

Friday was the first day that Bowman and other Fed officials could comment on their decision under the Fed's internal rules about talking publicly before and after interest-rate policy meetings.

On Wednesday, the Fed decided on a 50-basis-point cut that brought the Fed's policy rate to a range of 4.75% to 5%. The vote was 11 to 1 in favor of the cut, and Bowman's dissent was the first by a Fed governor on an interest-rate decision since 2005.

While 19 officials attend the Fed's policy meeting, there are only 12 voting members. All of the Fed's governors in Washington have a vote along with the president of the New York Fed. The other eleven regional Fed presidents rotate into the four remaining voting slots.

In her statement, Bowman said the Fed hasn't yet achieved its goal of bringing inflation down to 2%.

She backed future rate cuts, but "at a measured pace."

Going slowly would also avoid unnecessarily stoking demand, she added. Higher demand, in turn, could foster higher inflation.

Avery Shenfeld, chief economist at CIBC World Markets, said that Bowman is an outlier at the central bank. He said the Fed's "dot plot" of projections shows with only one exception, possibly Bowman, that Fed officials expect to bring down the policy rate to about 3.5% or lower by 2026, "and all but a handful see that happening in 2025."

"What that suggests is that if the economy performs as expected, getting the funds rate to 3.5% or so should be an easy decision," Shenfeld added.

He said that if Fed officials agree, there is no reason to "dilly-dally about getting there."

"The sooner you're at that level, the sooner the economy will feel the lift," Shenfeld said.

Traders in derivatives markets are expecting a near-3% policy rate by the end of 2025.

-Greg Robb

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09-21-24 0616ET

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