The likelihood of the Federal Reserve cutting rates is now in doubt with a central bank leader hinting a rate hike is likely to control inflation.
In prepared remarks published today ahead of a speech before the Spring 2024 Meeting of the Shadow Open Market Committee, Federal Reserve Governor Michelle Bowman contradicted hints by Fed Chairman Jerome Powell that rate cuts were coming this year.
“While it is not my baseline outlook, I continue to see the risk that at a future meeting we may need to increase the policy rate further should progress on inflation stall or even reverse,” said Bowman. “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.”
Bowman, who is a permanent voting member of the policy making Federal Open Market Committee (FOMC), acknowledged “it will eventually become appropriate to lower the policy rate, and I continue to see a number of upside risks to inflation.”
Other Fed leaders have been downplaying the possibility of rate cuts this year. Atlanta Fed President Raphael Bostic, an FOMC voter, stated earlier this week that only one rate cut was possible this year while Minneapolis Fed President Neel Kashkari, who is not on the FOMC, speculated there would be no cuts this year without inflation going into further decline.
“Still, my baseline outlook continues to be that inflation will decline further with the policy rate held steady at its current level, and that the labor market will remain strong but with labor demand and supply gradually rebalancing as the number of job openings relative to unemployed workers declines,” Bowman added. “And should the incoming data continue to indicate that inflation is moving sustainably toward our 2% goal, it will eventually become appropriate to gradually lower the federal funds rate to prevent monetary policy from becoming overly restrictive. However, we are still not yet at the point where it is appropriate to lower the policy rate, and I continue to see a number of upside risks to inflation.”
