Fed’s Bowman Says More Rate Hikes Needed to Bring Down Inflation

On Monday, Federal Reserve Governor Michelle W. Bowman provided some brief thoughts on the economic outlook and monetary policy at the American Bankers Association Community Banking Conference in Orlando Florida.

Fed Governor Bowman Sees Inflation as Much Too High

Fed Governor Michelle Bowman began her speech with comments about the Federal Open Market Committee’s (FOMC) effort to lower inflation, which she said continues to be much too high.

“Stable prices are necessary for a healthy economy and to support a labor market that works for everyone. As a member of the FOMC, I remain focused on bringing inflation down to our 2 percent goal,” Bowman said.

Bowman Expects FOMC to Take ‘Forceful Actions’ to Address Unacceptably High Inflation

“At our most recent meeting, we continued on that path by further increasing the target range for the federal funds rate by 25 basis points to 4-1/2 to 4-3/4 percent. I expect that ongoing increases will be appropriate to bring the federal funds rate to a sufficiently restrictive level and that it will need to remain there for some time to restore price stability.”

Economic and Inflation Outlooks Remain Highly Uncertain

“Global and domestic factors are contributing to heightened uncertainty, and I expect that we will continue to be surprised by economic and geopolitical developments and by the incoming data,” Bowman said.

Bowman added, “While we have seen modestly lower inflation readings in recent months, overall inflation remains high.”

“Measures of core services inflation have been persistently elevated, and labor demand exceeds the supply of available workers, which is leading employers to increase wages in an effort to retain and attract workers. The ongoing tightness in the labor market puts upward pressure on inflation, even if some components of inflation moderate due to improvements in supply-side factors. The longer high inflation persists, the more likely it is that households and businesses may come to expect higher inflation in the longer term. Should that be the case, the FOMC’s job of lowering inflation would be even more challenging,” Bowman said.

Future Rate Hikes Will Be Data Dependent

Bowman also remarked that “Given the highly uncertain environment, my views on the future path of monetary policy will continue to be informed by the incoming data and its implications for the outlook. I will continue to look for consistent evidence that inflation remains on a downward path when considering further rate increases and at what point we will have achieved a sufficiently restrictive stance for the policy rate.”

Higher Rates are Necessary to Bring Inflation Down, but There are Risks

Bowman finished her opening remarks by saying, “We are still far from achieving price stability, and I expect that it will be necessary to further tighten monetary policy to bring inflation down toward our goal. Doing so will likely lead to subdued growth in economic activity and some softening in labor market conditions. While there are costs and risks to tightening monetary policy to lower inflation. I see the costs and risks of allowing inflation to persist as far greater. Restoring price stability is essential to support a sustainably strong labor market.”