Federal Reserve Vice Chair for Supervision Michelle Bowman stated that, given persistently high inflation and the potential for economic data distortions from last year's record-long government shutdown, there is justification for waiting before implementing further interest rate cuts.
Bowman indicated that downside risks to the labor market have not dissipated, but she favors moving monetary policy toward a neutral level this year at a more "measured pace."
"Following the cumulative 75 basis points of rate cuts in the second half of last year, in my view, we are in a position to proceed patiently, temporarily 'holding our policy fire,' to carefully assess how the diminishing degree of policy restraint transmits into broader financial conditions and reinforces the labor market," Bowman said Friday in remarks prepared for an event in Oahu, Hawaii.
After three consecutive rate cuts in the latter half of last year, Bowman voted to keep interest rates unchanged at this week's meeting. Policymakers decided by a 10-2 vote to maintain the benchmark rate in the target range of 3.5% to 3.75%, with Fed Governors Stephen Milan and Christopher Waller dissenting in favor of a 25-basis-point cut.
Bowman said Friday that when she submitted her economic projections in December, she had anticipated three rate cuts for this year.
"The key question for me at this meeting was essentially a choice between continuing to remove policy restraint and reaching my estimate of neutral by the April meeting, or proceeding at a more measured pace to move policy toward neutral over the course of the year," she stated.
Bowman expressed confidence that inflation will return to the Fed's 2% target as the effects of tariffs fade. She noted that evidence suggests "the labor market remains fragile," but has shown some signs of stabilization.
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