In order to fully cement price stability in place, Federal Reserve Governor Michelle Bowman said the regulator may need to impose additional rate hikes on the central bank’s key rate.
Speaking of the Federal Open Markey Committee, which sets interest rates, Bowman said, “Additional rate increases will likely be needed to get inflation on a path down to the FOMC’s 2% target.”
Speaking at an event with the Kansas Bankers Association in Colorado on Saturday, Bowman said she supported the Fed’s decision to hike rates at its meeting last month.
While Bowman acknowledged that recently released data reveals a slowdown in price growth, she says more proof of disinflation will be needed, before the regulator should loosen policy.
She said, “The recent lower inflation reading was positive, but I will be looking for consistent evidence that inflation is on a meaningful path down toward our 2% goal as I consider further rate increases and how long the federal funds rate will need to remain at a restrictive level. I will also be watching for signs of slowing in consumer spending and signs that labor market conditions are loosening.”
The last rate hike by the Federal Reserve in July took the federal funds rate to a range of 5.25% to 5.5%, which is the highest level seen in 22 years. Looking at the Fed officials’ latest quarterly projections, which were published in June, they forecast two more rate hikes this year, one of which would have been last month’s increase.
Bowman pointed out future policy decisions would be based on assessments of incoming data, and that the Fed would raise rates, should progress in the battle against inflation stall. The next of the remaining three policy meetings of the Fed for 2023 will be in September.
Bureau of Labor Statistics data released Friday showed that nonfarm payrolls were up 187,000 last month, below forecasts, and the unemployment rate unexpectedly fell to 3.5%, which was one of the lowest readings in decades.
Following the jobs report, two Fed officials indicated the data showed that there was now a better balance in the labor market, and that the decision for the central bank may soon shift to how long it should maintain higher interest rate levels.
Atlanta Fed President Raphael Bostic said, “I expected the economy to slow down in a fairly orderly way, and this number — 187,000 — comes in continuing that pace. I’m comfortable. I’m not expecting this to be over in a short period of time,” indicating he does not see a need to rush things through additional rate hikes.
Austan Goolsbee, President of the Chicago Fed, in an interview with Bloomberg, said patience will be required through the disinflation process, and he remains optimistic the Fed will be able to bring inflation down to the 2% target of the central bank without triggering a recession. He added the time will soon be upon them where they will need to begin considering how long to hold interest rates steady, and for how long.
