Federal Reserve Gov. Michelle Bowman is cautious about lowering interest rates in September. Speaking Aug. 10 during an annual meeting sponsored by the Kansas Bankers Association in Colorado Springs, Colo., Bowman said there are still upside risks to inflation.
“My baseline outlook is that inflation will decline further with the current stance of monetary policy,” Bowman said. “Should the incoming data continue to show that inflation is moving sustainably toward our 2 percent goal, it will become appropriate to gradually lower the federal funds rate to prevent monetary policy from becoming overly restrictive on economic activity and employment.
“But we need to be patient and avoid undermining continued progress on lowering inflation by overreacting to any single data point. Instead, we must view the data in their totality as the risks to the committee’s employment and price-stability mandates continue to move into better balance.”
Bowman’s comments came a couple of weeks after Federal Reserve Chair Jerome Powell said the central bank could cut interest rates for the first time in four years next month if inflation continues to fall, citing progress toward lower inflation and a cooler job market that can no longer overheat the economy.
In July, the Federal Open Market Committee held its target range at 5.25 to 5.50 percent and planned to reduce the Federal Reserve’s securities holdings. Bowman said total and core personal expenditures inflation in June — 2.5 percent and 2.6 percent, respectively — remained “uncomfortably above” the FOMC’s 2 percent long-term goal.
Bowman doubts inflation will fall for the remainder of 2024. She said the causes of inflation falling last year — easing supply chain constraints, the growing workforce and lower energy prices — will likely not continue sparking inflation drops. “More importantly, prices continue to be much higher than before the pandemic, which continues to weigh on consumer sentiment,” she added.
Bowman sees the labor market as coming into better balance. The unemployment rate was 4.3 percent in July, which, although higher than a year ago, remained relatively low historically. She said consumers, despite increasing their total spending in the second quarter, have pulled back on discretionary items and expenses.
“Low- and moderate-income consumers no longer have savings to support this type of spending, and we’ve seen a normalization of loan delinquency rates as they have risen from historically low levels during the pandemic,” Bowman added.