Fed Governor Bowman adjusts rate setting, says hikes likely to end but not yet ready to cut

Federal Reserve Governor Michelle Bowman delivers her first public remarks as a federal policymaker at the American Bankers Association conference in San Diego, California, on February 11, 2019.

Ann Saphir | Reuters

Federal Reserve Governor Michelle Bowman, who has been one of the staunchest advocates of the central bank’s tight monetary policy, said on Monday that she has moderated her stance and signaled that interest rate hikes are likely over.

However, she said she is not ready to start cutting yet.

In remarks delivered at a private event in South Carolina, Bowman noted the progress made against inflation and said it should continue with short-term rates at their current levels.

“Based on this development, my view has evolved to consider the possibility that the rate of inflation could fall further if the key rate were to remain at current levels for some time,” she said. “If inflation continues to fall closer to our 2 percent target over time, it will eventually be appropriate to begin the process of lowering our interest rate to prevent policy from becoming too restrictive.”

“In my view, we are not at that point yet. And important pro-inflationary risks remain,” she added.

As governor, Bowman is a permanent constituent of the Federal Open Market Committee, which sets rates. Before that speech, she repeatedly said that more rate hikes would likely be needed to address inflation.

Her comments come weeks after the committee voted to keep the benchmark federal funds rate at its current target range of 5.25-5.5% at its December meeting. In addition, committee members indicated through their closely watched dot matrix that rates could be cut by three-quarters of a percentage point in 2024.

However, minutes released last week of the December 12-13 meeting did not provide any potential timetable for tapering, with members citing a high degree of uncertainty about how conditions might develop. Inflation has been falling toward the Fed’s target and, by one measure, has been below it for the past six months.

Bowman said policymakers will stay attuned to how things develop and not be locked into a political course.

“I will remain cautious in my approach to considering future changes in policy stance,” she said, adding that if the inflation data turns around, “I will remain open to raising the federal funds rate at the next meeting.”

The Fed meets again on January 30-31, with markets expecting the committee to hold rates on hold and then begin cutting in March. Market prices point to a total cut of 1.5 percentage points this year, or six cuts, according to CME Group’s FedWatch tracker.

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