Still upside risks left to inflation, says Fed’s Bowman
Federal Reserve Governor Michelle Bowman said she sees a number of upside risks to the inflation outlook, and reiterated the need to keep borrowing costs elevated for some time.
“We are still not yet at the point where it is appropriate to lower the policy rate,” Bowman said in prepared remarks Tuesday in London. “Given the risks and uncertainties regarding my economic outlook, I will remain cautious in my approach to considering future changes in the stance of policy.”
In a moderated discussion following her speech, the Fed governor said she doesn’t project any interest-rate cuts this year, repeating comments she made on May 10. Instead, Bowman said Tuesday, she’s shifted those into future years.
Bowman identified several areas that could put upward pressure on prices.
She said the economy is unlikely to benefit from further supply-side improvements, citing pandemic-era supply chain disruptions that have largely resolved and limited growth in labor force participation in recent months.
She said tightness in the labor market leading to elevated wage growth, geopolitical developments, fiscal stimulus and a loosening in financial conditions are additional potential risks to the inflation outlook.
Officials have held interest rates at their highest level in more than two decades for nearly a year, and have pulled back their estimates for how many times they will cut borrowing costs this year.
“Reducing our policy rate too soon or too quickly could result in a rebound in inflation, requiring further future policy rate increases to return inflation to 2% over the longer run,” she said.
Bowman also reflected on the central bank’s delayed response to a surge in inflation in 2021. She pointed to the years of low inflation
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