Introduction

According to Governor Michelle Bowman, the U.S. Federal Reserve may need to increase interest rates further in order to combat inflation. In her remarks to the Kansas Bankers Association, she expressed her support for the Fed’s quarter-point interest rate hike last month. Bowman cited reasons such as high inflation, robust consumer spending, a rebounding housing market, and a strong labor market contributing to the rise in prices.

Raising Rates to Achieve Target Inflation

Bowman emphasized the necessity for additional rate increases to steer inflation towards the Federal Open Market Committee’s (FOMC) target of 2%. She stated that monetary policy is not predetermined, and future decisions will be guided by data. Bowman iterated, “We should remain willing to raise the federal funds rate at a future meeting if the incoming data indicate that progress on inflation has stalled.”

A Hawkish Stance

Bowman has often expressed more hawkish views compared to some of her colleagues. While most Fed policymakers predict ending the year with a quarter-point hike, taking the Fed policy rate to 5.6%, Bowman’s use of the plural “rate increases” suggests she believes that the Fed may need to go beyond that.

Possibility of a Pause

Fed Chair Jerome Powell left room for another rate increase in September, but also indicated that if economic data suggests a slowdown, a pause may be considered. Bowman acknowledged some progress in curbing inflation, as the consumer price index dropped to a 3% annual rate in June from 9% the previous year.

Monitoring Key Indicators

Bowman emphasized the importance of consistent evidence that inflation is moving towards the 2% target. She also mentioned keeping an eye on signs of slowing consumer spending and loosening labor market conditions. Although hiring slowed in June, unemployment remains low at 3.5%, and there are still more job openings than available workers.

Stability in Lending

Bowman noted that banks continue to provide loans to households and businesses, albeit at a slower pace than when interest rates were lower. Despite the banking turmoil in March, there has been no significant contraction of credit.