Summary:
On Friday, September 20, Bowman, the Federal Reserve Governor, stated that she does not support a 50 basis point rate cut. Instead, she preferred a 25 basis point reduction because inflation remains above the 2% target, which could lead the public to believe that the Federal Reserve has declared an early victory over inflation.
On September 20, local time, Michelle Bowman, a Federal Reserve Governor, issued a statement regarding monetary policy as follows: On Wednesday, September 18, 2024, she opposed the Federal Open Market Committee's decision to lower the target range for the federal funds rate by half a percentage point. As indicated in the committee's statement following the meeting, Bowman preferred to reduce the target range for the federal funds rate by only a quarter of a percentage point.
Given the progress we have seen since mid-2023 in reducing inflation and cooling the labor market, I agree that it was more appropriate in this meeting to recalibrate the federal funds rate and begin the process of moving toward a more neutral policy stance. However, in my opinion, it would have been better for the first step in this process to be smaller. The U.S. economy remains strong, with robust core growth in economic activity and a labor market close to full employment. Although employment seems to have declined, it should be noted that layoffs are still low. I believe that normalizing labor market conditions is essential to help reduce wage growth to a pace consistent with the 2% inflation rate in the context of productivity growth.
Inflation remains above our 2% target, as core personal consumption expenditures are still rising at a rate faster than 2.5% compared to the past twelve months. While it is important to recognize that there has been tangible progress in reducing inflation, as long as core inflation remains at 2.5% or higher, I see a risk that the broader policy action taken by the committee could be interpreted as a premature declaration of victory in achieving our mandate for price stability. We have not yet reached our inflation target, and I believe that moving at a measured pace toward a more neutral policy stance would ensure further progress and stability in reducing inflation to our 2% target. Despite my opposition at our last meeting, I respect and appreciate my colleagues' preference to begin lowering the federal funds rate with a larger initial cut in the target range for the interest rate.
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