Fed's Bowman: December Rate Cut Was 'Final' Recalibration Step

Federal Reserve Governor Michelle Bowman has expressed her support for the recent interest rate cut, stating that the December reduction should be the "final step" in the easing process. Bowman, who is generally regarded as one of the more hawkish members of the committee, believes that the current policy rate is near the neutral level, which neither supports nor restrains growth. She also cited the progress made in lowering inflation and the ongoing strength in economic activity and the labor market as reasons for her cautious approach to future policy adjustments.



Bowman's view on inflation risks influences her stance on future rate cuts. She is concerned about the "upside risks to inflation," which she believes have not been fully addressed despite the progress made in 2023. She notes that the rate of inflation declined significantly in 2023 but has since stalled, with core inflation still "uncomfortably above" the Fed's 2% goal. Bowman is particularly worried about the lack of further progress on inflation, as well as the potential release of "pent-up demand" following the November presidential election, which could exacerbate inflationary pressures.

Given these concerns, Bowman supports the December 2024 rate cut as the "final step" in the easing process, but she does not see the need for further cuts. She believes that the current policy rate is near the neutral level, which neither supports nor restrains growth. Bowman's cautious approach to monetary policy is reflected in her statement that she continues to prefer a "cautious and gradual approach to adjusting policy."

Bowman's view on inflation risks is further validated by the Fed's preferred inflation gauge, which showed a rate of 2.4% in November 2024, and the core measure, which excludes food and energy, at 2.8%. These figures indicate that inflation remains above the Fed's target, and Bowman is mindful of the potential for further increases. Therefore, her stance on future rate cuts is influenced by her assessment of the ongoing inflation risks and her desire to maintain a cautious approach to monetary policy.

Bowman's cautious approach to monetary policy, as evidenced by her support for the December 2024 rate cut as the "final step" in the easing process, reflects her concern about the potential impact of the incoming administration's policies on inflation and economic activity. She has advised her colleagues to refrain from prejudging the incoming administration's future policies, such as tariffs and immigration, and to wait for more clarity before adjusting monetary policy. This approach is significant because it highlights the importance of remaining flexible and data-dependent in monetary policy decisions, especially in the face of uncertainty about future government policies. By taking a cautious approach, Bowman is signaling that the Fed should be prepared to adjust its policy stance as needed to address any potential risks to inflation or economic growth that may arise from the incoming administration's policies.

In conclusion, Federal Reserve Governor Michelle Bowman's support for the December 2024 rate cut as the "final step" in the easing process reflects her concern about the potential impact of the incoming administration's policies on inflation and economic activity. Her cautious approach to monetary policy is influenced by her assessment of the ongoing inflation risks and her desire to maintain a flexible and data-dependent approach to policy decisions. As the Fed continues to monitor the economic landscape and adjust its policy stance accordingly, Bowman's perspective will be an important factor in shaping the Committee's future decisions.