Federal Reserve Governor Michelle Bowman emphasized a cautious approach to interest rate cuts, noting that inflation remains “uncomfortably” above the central bank’s 2% target. In comments made Friday, Bowman reiterated the need for gradual adjustments to the policy rate, as inflationary pressures persist despite progress in cooling the labor market.
Key Comments:
Cautious Approach to Rate Cuts: Bowman expressed a preference for proceeding “cautiously and gradually” with rate reductions, given that inflation is still elevated.
Inflation and Economic Strength: She acknowledged that while the Fed has made progress in lowering inflation, the economy remains robust, and core inflation is still above the target level.
Labor Market and Unemployment: Bowman noted that while the labor market has cooled, the unemployment rate is still well below the “full employment” threshold, suggesting that the economy isn’t overheating.
Inflation Risks: She highlighted the ongoing risks to inflation, cautioning that reducing rates too quickly could reignite price pressures.
Bowman’s comments suggest the Fed is unlikely to embark on aggressive rate cuts until inflation moves more decisively toward its 2% goal. Market participants will closely watch upcoming inflation data, expected next week, to assess the likelihood of further rate cuts at the Fed’s December meeting.
Market Reaction: The US Dollar Index (DXY) remained largely unchanged at 105.98 as of the latest update, reflecting a wait-and-see approach in the wake of Bowman’s remarks. Investors are keenly awaiting next week’s inflation data, which will play a crucial role in shaping the Fed’s rate decision.
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