The U.S. Federal Reserve and the Need to Control Inflation
Rising Interest Rates to Tackle Inflation
Governor Michelle Bowman stated that the U.S. Federal Reserve will likely need to raise interest rates further to combat inflation. She supported the Fed’s recent quarter-point increase in interest rates due to factors such as high inflation, strong consumer spending, a rebound in the housing market, and a labor market contributing to higher prices.
Bowman emphasized the necessity for additional rate increases to bring inflation down to the Federal Open Market Committee’s (FOMC) target of 2 percent.
She also highlighted that monetary policy is not predetermined and will be data-driven in the future. If incoming data indicates a stall in progress on inflation, the federal funds rate may be raised at a future meeting.
Bowman’s stance on rate increases tends to be more hawkish than some of her colleagues, as she believes the Fed may need to go higher than the predicted 5.6% rate by the end of the year.
Fed Chair Jerome Powell has left the possibility of another rate increase in September open, but he has also indicated that cooler data could lead to a pause in rate hikes.
Monitoring Inflation and Economic Indicators
Bowman acknowledged the recent slowdown in inflation, which dropped to a 3% annual rate in June from 9% in the middle of the previous year according to the consumer price index.
However, she emphasized the need for consistent evidence that inflation is on a sustainable path towards the 2 percent goal. This evidence will be crucial in determining the necessity and duration of further rate increases.
Furthermore, Bowman expressed her intention to monitor consumer spending trends and labor market conditions for signs of slowing. While hiring slowed in June, unemployment remains low at 3.5%, and there are still many job openings with insufficient workers to fill them.
Stability in Lending and Credit
Bowman remarked that banks have continued to lend to households and businesses, although at a slower pace than when interest rates were lower. She noted that there has been no significant credit contraction since the banking turmoil in March.