Inflation Risks Remain Real

By Michael S. Derby

Federal Reserve Governor Michelle Bowman expressed on Friday that inflation risks are still significant for the economy, emphasizing the need for caution regarding future central bank rate cuts.

Bowman highlighted her concerns about price stability, especially as the labor market remains close to full employment. At the Missouri Bankers Association Executive Management Conference, she stated, "I would prefer that we proceed cautiously and gradually in lowering the policy rate, as inflation remains elevated."

Her comments followed the release of November's job market data, which revealed a significant hiring rebound with an increase of 227,000 jobs, although the unemployment rate rose to 4.2% from 4.1% the previous month.

These jobs figures bolstered market expectations that the Federal Open Market Committee may lower the federal funds target rate range at their next meeting on December 17-18 by a quarter percentage point, marking a total reduction of one full percentage point since September.

Expectations for a rate cut have been fueled by decreasing inflation pressures and concerns that tight monetary policy could negatively impact the labor market. Bowman, who disagreed with the scale of the Fed's rate cut in September, is still wary of inflation.

While she did not specify her expectations for the upcoming meeting, Bowman indicated that Friday's employment report and next week's inflation data would influence her perspective on the FOMC decision.

She noted that the economy is still robust, with core inflation above target and the unemployment rate remaining below its long-term average, despite its recent increase.

Bowman mentioned, "We've seen progress in lowering inflation, but that progress seems to have stalled this year." She described the job market as being at “full employment” and expressed concerns about the reliability of hiring data due to potential measurement challenges and revisions.

Cautioning against overreliance on limited real-time data, she stated, "I'm still cautious about taking signals from only a limited set of real-time data releases like the labor market data."

Bowman also questioned the prevailing notion among central bankers that current interest rates are constraining the economy, remarking, "It’s hard to think that the level of interest rates is restrictive at this point given how the economy is performing."