According to Governor Michelle Bowman on Saturday, the U.S. Federal Reserve will likely need to increase interest rates even more to reduce inflation.
Bowman stated that she agreed with the Fed’s decision to raise interest rates by a quarter point last month, given the continued high inflation rate, robust consumer spending, recovery in the housing market, and labor market that is feeding higher prices.
In remarks planned for delivery at the Kansas Bankers Association, she said, referring to the Federal Open Market Committee, the Fed’s rate-setting body, “I additionally anticipate that more hikes in rates are likely to be required to get inflation on a path down to the FOMC’s 2 percent target.”
She also noted that monetary policy is not on a “preset course” and that evidence will guide further choices.
“We should continue to be prepared to raise the federal funds rate at a subsequent meeting if the incoming data show that inflation progress has stalled,” the statement reads.
More frequently than some of her colleagues, Bowman has stated opinions that are more hawkish.
In predictions released in June, the majority of Fed policymakers projected that the policy rate would end the year at 5.6%, up one-quarter point from the level decided upon at the Fed’s late-July meeting.
According to Bowman, the Fed will need to raise interest rates above that, as evidenced by her use of the plural “rate increases” in her speech on Saturday.
Fed Chair Jerome Powell left the door open for another rate hike in September after the most recent one, but he also gave a hint that colder data would allow a delay.
According to the generally regarded consumer price index, which Bowman stated had fallen from 9% in the middle of last year to 3% in June, inflation had made some headway.
“The recent lower inflation number was positive, but as I consider additional rate hikes and how long the federal funds rate will have to stay at a restrictive level, I will be seeking consistent proof that inflation is on an important path down toward our 2 percent goal,” she added.
I’ll also be keeping an eye out for indications that consumer spending is slowing down and that the labor market is becoming more flexible.
In June, hiring slowed, according to the Labor Department’s monthly report on the labor market, but unemployment remained low at 3.5%, and Bowman pointed out that there are still a lot more open positions than there are employees to fill them.
Since the banking turbulence in March, banks have continued to provide loans to consumers and businesses, but more slowly than when interest rates were lower, according to the expert.