Fed’s Bowman still cautious about changing policy stance By Reuters

(Reuters) – Federal Reserve Governor Michelle Bowman said on Tuesday she remained cautious about any change in U.S. central bank policy because of what she sees as continued rising risks to inflation, warning that an overreaction to any single data point could jeopardize the progress already made. .

Bowman’s prepared remarks at a gathering of bankers in Alaska reflect her continued position as one of the Fed’s most hawkish policymakers. While she refrained for a second time from saying she was prepared, if necessary, to raise rates further, as has been her position previously, she gave little indication that she was prepared to back a rate cut at the Fed’s meeting on 17 -September 18, as is now widely expected.

Inflation should continue to fall below the current policy stance, she said, and if inflation continues to fall sustainably toward the Fed’s 2 percent target, “it will become appropriate to gradually reduce the federal funds rate to prevent policy currency to become excessively restrictive on economic activity and employment”.

But Bowman said “we need to be patient and avoid undermining continued progress in reducing inflation by overreacting to any single data point” — an apparent reference to the shift in focus among several Fed officials after a July jobs report which showed slower engagement. and an increase in the unemployment rate to 4.3% – a post-pandemic high.

The inconsistencies in the latest employment report warrant caution, she said, noting that while the strength of hiring over the past year may have been overstated, it’s also possible that rising unemployment is exaggerating the extent of the market’s cooling work in progress.

“Increased measurement difficulties and the frequency and extent of data revisions over the past few years make the task of assessing the current state of the economy and predicting how it will evolve even more difficult,” Bowman said. “I will remain cautious in my approach to considering adjustments to the current policy position.”

Financial markets now fully expect the Fed to cut its benchmark interest rate next month from the current 5.25%-5.50% range it has been in since July 2023. The question is how big the first cut will be, with current market odds favoring a quarter-percentage-point cut over a half-percentage-point move.