Fed's Bowman Anticipates Lower Inflation but Cautions of Upside Risks
Federal Reserve Governor Michelle Bowman anticipates further interest rate cuts this year due to declining inflation. However, she acknowledges potential headwinds from rising wages, robust financial markets, geopolitical risks, and forthcoming administration policies.
"Core inflation remains elevated, but my expectation is that it will moderate further this year," Bowman said to New England business executives. "Even with this outlook, I continue to see upside risks to inflation."
Bowman supports gradual policy rate adjustments, emphasizing the need to assess progress towards inflation and employment goals. Her comments align with the Fed's decision to maintain the benchmark overnight interest rate at 4.25% to 4.5%.
The release of Bowman's remarks coincided with the publication of December inflation data. While monitoring official statistics, Bowman emphasizes the Fed's decision to hold rates steady provides time to evaluate the Biden administration's policies and their economic impact.
Bowman notes the impact of the Trump administration's immigration policies and anticipates potential tariffs on imports. She remains cautious about potential inflationary pressures, including tight labor markets, fragile global supply chains, and strong economic growth.
"Easier financial conditions over the past year may have contributed to the lack of further progress on slowing inflation," Bowman said. "Overall interest rates and borrowing costs do not seem to be exerting meaningful restraint."
Bowman remains committed to containing inflation while considering the impact of external factors and administration policies on economic conditions.