Fed’s Bowman: Gradual rate cuts on the table if inflation continues to ease

Fed Governor Michelle Bowman, in a speech overnight, stated that her baseline outlook anticipates further declines in inflation under the current monetary policy. Should incoming data continue to confirm that inflation is moving steadily toward the 2% target, it may become appropriate to “gradually lower” the federal funds rate. This adjustment would prevent monetary policy from becoming “overly restrictive” on economic activity and employment.

However, Bowman urged to be “patient” and “avoid undermining” the continued progress on disinflation by “overreacting to any single data point”. She emphasized that monetary policy is “not on a preset course,” and decisions will depend on upcoming economic data. By the September meeting, Fed will review additional employment and inflation reports, as well as broader financial conditions, to assess their impact on the economic outlook.

Bowman also warned of “some upside risks to inflation,” citing concerns that supply conditions, now largely normalized, may not sufficiently counteract price pressures from geopolitical tensions, fiscal stimulus, and increased housing demand driven by immigration.

She also noted that the labor market might not be as strong as payroll data suggests, and the recent rise in unemployment could be “exaggerating the degree of cooling in labor markets.”

Full speech of Fed’s Bowman here.