Fed’s Bowman: Persistent Inflationary Pressures Justify More “Measured” Rate Cut

US Federal Reserve Governor Michelle Bowman has emphasized that key inflation indicators are still “uncomfortably above” the Fed’s target. She defended her choice to dissent against a significant 50-basis point interest rate cut last week, advocating instead for a more modest reduction of 25 basis points.

Bowman’s dissent marks the first instance of such a disagreement by a Fed governor since 2005. Her stance introduced a lack of complete consensus among Fed rate-setters, especially as the central bank has indicated a shift toward a new easing cycle.

Addressing the Kentucky Bankers Association Annual Convention in Virginia, Bowman pointed out that there are notable risks to inflation, particularly stemming from aggressive fiscal policies and a continuing mismatch between housing supply and demand.

Before the recent substantial rate cut, interest rates had been at a more than two-decade high for over a year, driven primarily by the Fed’s objective to combat soaring inflation. While the pace of price increases has begun to moderate, some indicators suggest persistent pressure from core inflation, which excludes volatile items like food and fuel.

In August, the annualized core personal consumption expenditures (PCE) price index measured 2.6%. Bowman specifically noted this figure, emphasizing that it remains “uncomfortably above” the Fed’s 2% target. Updated PCE data is expected to be released soon.

Bowman’s remarks stand in contrast to several other Fed officials who argued earlier this week that the half-point cut was necessary due to high rates exerting excessive pressure on the economy, particularly as inflation appears to recede and labor demand weakens.

More speeches from Fed officials are scheduled for this week, including one from Fed Chair Jerome Powell.