Federal Reserve Gov. Michelle Bowman outlined her opposition to the Fed’s half percentage-point interest rate cut earlier this month.
Bowman’s comments during the Kentucky Bankers Association’s annual convention came one week after the Federal Open Market Committee reduced interest rates a half percentage point to 4.75 to 5.00 percent and continued reducing its securities holdings.
Bowman, the lone dissenting vote among the 12 Federal Reserve governors, said she instead preferred a quarter-point reduction. A quarter-point drop “would have better reinforced the strength in economic conditions, while also confidently recognizing progress toward our goals,” she added.
Dropping the rate too rapidly risks unleashing pent-up demand and causing inflation to rise yet again, Bowman said. The half-percentage point drop could also signal the FOMC will lower the target range by the same pace at future meetings until the policy rate hits a neutral mark, Bowman said. That could have led to an unnecessary drop in longer-term interest rates while making broader financial conditions “overly accommodative,” she added.
“Global supply chains continue to be susceptible to labor strikes and increased geopolitical tensions, which could result in inflationary effects on food, energy and other commodity markets,” Bowman added.
Core personal consumption expenditures inflation, at 2.6 percent in July, remained higher than its 2 percent goal, and was expected to be slightly higher in August. The unemployment rate edged down to 4.2 percent from 4.3 percent in July.
In a press release following the meeting, the FOMC said it was more confident that inflation was sustainably moving toward its 2 percent target. Politicians also weighed in on interest rate cuts. In a letter to Federal Reserve Chair Jerome Powell the day before the FOMC meeting, Sens. Elizabeth Warren (D-Mass.), John Hickenlooper (D-Colo.) and Sheldon Whitehouse (D-R.I.) urged the FOMC to cut the federal funds rate 75 basis points. According to the Senators, the Fed should frontload cuts to prevent further weakening in the labor market.
“Powell’s delays have threatened the economy and left the Fed behind the curve,” they wrote.
On the Republican side, former President Donald Trump has frequently urged the Fed not to reduce interest rates until after the election. However, multiple Republicans have broken with the former president in supporting an interest rate cut to prevent the economy from weakening.
