Rate cuts will be needed if inflation continues to fall By Reuters

(Reuters) – Federal Reserve Governor Michelle Bowman softened her usually dovish tone on Saturday, noting “welcome” progress on inflation over the past two months, even as she said inflation remained “uncomfortably above” the central bank’s 2% target. and subject to increasing risks.

“If incoming data continue to show that inflation is moving sustainably toward our 2 percent objective, it will become appropriate to gradually lower the federal funds rate to prevent monetary policy from becoming excessively restrictive on economic activity and employment,” Bowman said in prepared remarks. for delivery at a closed meeting of the Kansas Bankers Association. “But we must be patient and avoid undermining continued progress in reducing inflation by overreacting to any single data point.”

In late July, the Fed kept the policy rate in the same 5.25%-5.50% range it has been in for more than a year, but signaled that a rate cut could happen soon what September, if inflation continues to cool. Inflation by the Fed’s target measure — the year-over-year change in the price index for personal consumption expenditures — fell to 2.5 percent in June.

Bowman’s remarks did not rule out a rate cut next month. Indeed, she noted that by the time the Fed meets in September, it will have additional economic data as well as a better idea of ​​how recent financial market volatility may affect the economic outlook.

Bowman also did not repeat her assertion in previous speeches that she remains willing to raise rates at a future Fed meeting if necessary.

But she remains a cautious voice on the Fed’s policy-making committee as it moves closer to cutting interest rates.

While Bowman reiterated that her basic outlook is for inflation to continue to decline with monetary policy held constant, she expressed skepticism that price pressures will ease as quickly this year as they did last year.

And while she said the risks to the Fed’s twin goals of price stability and full employment were moving into better balance, she signaled she was still more concerned about inflation.

July’s rise in the unemployment rate, to a near three-year high of 4.3 percent, “may exaggerate the degree of cooling in labor markets,” she said, pointing to a low level of layoffs and the likelihood that Hurricane Beryl would temporarily had. slowed job gains.

Meanwhile, she said, risks, including geopolitical tensions, threaten to push prices higher. “With some upside risks to inflation, I continue to see the need to pay close attention to the price stability side of our mandate, while keeping an eye on the risks of a material weakening in the labor market,” she said.