Federal Reserve Vice-Chair for Supervision Michelle Bowman said she saw merit in waiting to lower rates further given elevated inflation and uncertainty over potential distortions in economic data stemming from last year’s record-long government shutdown.
Bowman said the downside risks to the labour market have not diminished, but she prefers to move policy toward neutral at a more “measured pace” this year.
“After lowering the policy rate by a total of 75 basis points in the latter part of last year, in my view, we can afford to take time and ‘keep policy powder dry’ for a little while in order to carefully assess how the lower degree of policy restraint is flowing through to broader financial conditions and strengthening the labour market,” Bowman said on Friday in remarks prepared for an event in Oahu, Hawaii.
Bowman voted in favour of this week’s decision to hold interest rates steady after three straight reductions late last year. Policymakers voted 10-2 to leave their benchmark rate in a target range of 3.5-3.75%, with Fed Governors Stephen Miran and Christopher Waller dissenting in favour of a quarter-point cut.
Bowman said on Friday she pencilled in three rate reductions for this year when she submitted her economic projections in December.
“In my mind, the question at this meeting was about the timeline for implementing these cuts, essentially choosing between continuing to remove policy restraint and arriving at my estimate of neutral by the April meeting, or moving policy to neutral at a more measured pace throughout this year,” she said.
Bowman said she is confident inflation will return to the Fed’s 2% target as tariff effects fade. She said there is evidence the “labour market remains vulnerable”, but there have been some signs of stabilisation.
