Federal Reserve Governor Michelle Bowman said on Tuesday, June 25, that it was not yet time to start cutting interest rates, noting that she would be ready to raise borrowing costs if inflation rates did not show a slowdown.
Michelle Bowman says that provided that statistical data show a steady approach to the dynamic of the inflationary process to the target of 2%, it will be advisable to start easing monetary policy. In this case, it implies a gradual cutting of the federal funds rate. The mentioned approach, according to Michelle Bowman, will prevent excessive tightening of monetary policy. Separately, it is underlined that so far it is impractical to lower the policy rate.
The mentioned statements are a reflection of the sentiments that are currently dominant among officials of the central bank of the United States. In this case, a kind of consensus view is that monetary policy easing should only be considered in the context of progress towards the Fed’s 2% inflation target. The process of lowering the cost of borrowing may begin before the specified goal becomes a fact of objective economic reality. At the same time, the financial regulator of the United States will take appropriate actions only when there is unambiguous and obvious evidence that the movement towards the inflation target is stable and has maximum prospects of continuing until the necessary result materializes.
The latest data on the dynamic of the inflation process in the United States indicate its slowdown. The Fed’s preferred rate is just under 3%. The Federal Open Market Committee, which sets interest rates, announced modest progress towards achieving the inflation target after its last meeting.
Michelle Bowman says that there are currently a number of upside risks that could have an impact on her outlook. In this case, it implies a vision of future potential changes in monetary policy. She announced her readiness to raise the target range of the federal funds rate at the next meeting if the progress in the movement of the inflation process to the goal slows down or starts motion in the opposite direction. Michelle Bowman takes a cautious approach in the context of considering future changes in monetary policy.
The US Commerce Department on Friday, June 28, will release the personal consumption expenditures price index for May. These data are the Fed’s preferred gauge of inflation. Economists surveyed by Dow Jones expect the 12-month inflation rate to reach 2.6%, both in all items and at core prices, excluding the cost of food and energy.
Michelle Bowman still expects the Fed to keep the key overnight borrowing rate in the range of 5.25%-5.50%. She also said that her position was not affected by the lowering of borrowing costs by global partners of the United States financial regulator, including, for example, the European Central Bank, which eased monetary policy in June. In this context, Michelle Bowman stated the likelihood that in the coming months, the strategy of the mentioned policy in the US will diverge from the concept of similar actions in other advanced economies.
