Fed governors stake out competing views of inflation

- Advertisement -

By Howard Schneider and Ann Saphir

CHARLOTTESVILLE, Virginia- Two Federal Reserve governors on Wednesday laid out competing visions of where US monetary policy may be heading, with one citing ongoing concerns about inflation and another expressing confidence that price pressures will continue to ease.

The separate speeches by Michelle Bowman and Lisa Cook show the set of concerns central bank officials will be weighing as they decide whether to approve another quarter-percentage-point reduction in the benchmark policy rate at their Dec. 17-18 meeting.

- Advertisement -spot_img

Once seen as highly likely, investors now put just 55 percent odds on a rate cut next month. Recent data showing strong economic growth and sticky inflation have partly driven that shift in expectations, and Donald Trump’s victory in the Nov. 5 presidential election has added to the sense of risk and uncertainty around the path of inflation.

Bowman, appointed to the Fed’s Board of Governors by Trump during his first four-year term in the White House, said in comments to an economic forum in West Palm Beach, Florida, that with inflation still elevated and moving sideways in the last few months, the Fed needed to be cautious.

“We have seen considerable progress in lowering inflation since early 2023, but progress seems to have stalled in recent months. … I would prefer to proceed cautiously in bringing the policy rate down to better assess how far we are from the endpoint,” Bowman said, noting that the Fed’s Nov. 7 policy statement “included a flexible, data-dependent approach, providing the (Federal Open Market) Committee with optionality in deciding future policy adjustments.”

Bowman said she agreed that improvements in inflation warranted lower rates. But she dissented against the half-percentage-point cut approved by the Fed in September, favoring a smaller quarter-percentage-point reduction, and says the central bank should be wary of cutting rates too far, too fast, and allowing inflation to resurge.

Cook, in remarks at the University of Virginia in Charlottesville, did not explicitly endorse a rate cut next month, and included the usual policymaker caveats that monetary policy was not on a predetermined course.

But Cook, who was appointed to the Fed’s board by President Joe Biden in 2022, also voiced confidence in a continued easing of price pressures that are now largely confined to the housing sector. She estimates that inflation, while stalled of late, would drop to around 2.2 percent next year, just above the Fed’s 2 percent target, and continue lower from there.

The personal consumption expenditures price index stripped of food and energy costs, considered a good guide to underlying price trends, is estimated to have been 2.8 percent in October, and has changed little in the last four months. – Reuters

Author

Share post: