Fed's Bowman says she expects further policy tightening will be needed

Federal Reserve Governor Michelle Bowman

© APA | Federal Reserve Governor Michelle Bowman

# 07 November 2023 22:36 (UTC +04:00)

Federal Reserve Governor Michelle Bowman on Tuesday repeated her view that the U.S. central bank will likely need to raise short-term interest rates again, though for now she is content to assess the data and what it implies for the economic outlook.

"I remain willing to support raising the federal funds rate at a future meeting should the incoming data indicate that progress on inflation has stalled or is insufficient to bring inflation to 2% in a timely way," Bowman said in remarks prepared for delivery to a meeting of the Ohio Bankers League.

The Fed last week left its policy rate in the 5.25%-5.50% range, and though Fed Chair Jerome Powell left the door open to another interest-rate hike, he said that recently tighter financial conditions could slow the economy on their own.

The 10-year Treasury yield has fallen since then, but at around 4.58% remains about 75 basis points higher than it was in late July, when the Fed last raised the policy rate.

Bowman said she feels the short-term policy rate "appears to be restrictive," and noted the rise in long-term bond yields, but said they can be volatile as conditions change, adding "we don't yet know" how tighter financial conditions will affect economic activity and inflation.

There has been considerable progress on inflation, she said, but it still is high, services inflation may prove stubborn, and higher energy prices risk undoing some of the progress so far - all points she has repeatedly made in recent months. The economy has been strong in the face of the Fed's rate hikes so far, she said, though frequent and large data revisions make tracking conditions challenging.

"While I continue to expect that we will need to increase the federal funds rate further to bring inflation down to our 2% target in a timely way, I supported the FOMC’s decision last week to hold the target range for the federal funds rate at the current level as we continue to assess incoming information and its implications for the outlook," Bowman said.

Much of Bowman's speech was a rundown of her criticisms of recent Fed regulatory proposals and rule-making on bank capital, community lending requirements, and climate risks.