Fed’s Bowman Opposes Large Rate Cut to Prevent Implying Victory Over Inflation

Fed Governor Michelle Bowman expressed her dissent regarding the central bank’s decision to initiate a rate-cutting cycle with a substantial reduction. She emphasized that this approach could foster the erroneous belief that the Fed has successfully controlled inflation.

While Bowman acknowledged the need to adjust the federal funds rate, she argued that a more moderate initial cut would have been preferable. She raised concerns that the larger reduction might be seen as a “premature declaration of victory” over inflation.

Bowman was the only member of the Fed to oppose the 50 basis point cut made in September, advocating instead for a more conservative 25 basis point reduction. She supported a gradual rate-cutting strategy to avoid excessive demand stimulation, particularly since inflation levels have not yet reached the Fed’s 2% target.

Bowman noted that inflation remains above the desired level, with core personal consumption expenditures increasing at a rate exceeding 2.5% year-over-year. She remarked that the current labor market situation is uncertain, influenced by measurement difficulties and challenges in evaluating the impact of recent immigration trends.

Nonetheless, she underscored the importance of a slowing labor market in achieving wage growth that aligns with the 2% inflation goal, taking into account typical productivity growth rates.