Fed Governor Bowman adjusts rate stance, says hikes likely over but not ready to cut yet

Federal Reserve Bank Governor Michelle Bowman gives her first public remarks as a Federal policymaker at an American Bankers Association conference In San Diego, California, February 11 2019.

Ann Saphir | Reuters

Federal Reserve Governor Michelle Bowman, who had been one of the central bank’s staunchest advocates for tight monetary policy, said Monday she’s adjusted her stance somewhat and indicated that interest rate hikes are likely over.

However, she said she’s not ready to start cutting yet.

In remarks delivered at a private event in South Carolina, Bowman noted the progress made against inflation and said it should continue with short-term rates at their current levels.

“Based on this progress, my view has evolved to consider the possibility that the rate of inflation could decline further with the policy rate held at the current level for some time,” she said. “Should inflation continue to fall closer to our 2 percent goal over time, it will eventually become appropriate to begin the process of lowering our policy rate to prevent policy from becoming overly restrictive.”

“In my view, we are not yet at that point. And important upside inflation risks remain,” she added.

As a governor, Bowman is a permanent voter of the rate-setting Federal Open Market Committee. Prior to this speech, she had repeatedly said additional rate hikes likely would be needed to address inflation.

Her comments come a few weeks after the committee, at its December meeting, voted to hold the benchmark federal funds rate at its current target range of 5.25%-5.5%. In addition, committee members, through their closely followed dot-plot matrix, indicated that the equivalent of three quarter-percentage point rate cuts could come in 2024.

However, minutes released last week from the Dec. 12-13 meeting provided no potential timetable on the reductions, with members indicating a high degree of uncertainty over how conditions might evolve. Inflation is trending down toward the Fed’s target, and by one measure is running below it over the past six months.

Bowman said policymakers will remain attuned to how things develop and are not locked into a policy course.

“I will remain cautious in my approach to considering future changes in the stance of policy,” she said, adding that if the inflation data reverse, “I remain willing to raise the federal funds rate at a future meeting.”

The Fed meets again on Jan. 30-31, with markets expecting the committee to stay put on rates and then begin cutting in March. Market pricing indicates a total of 1.5 percentage points worth of reductions this year, or six cuts, according to the CME Group’s FedWatch tracker.