Fed chief Bowman remains cautious on rate cuts as upside risks to inflation remain By Investing.com

Investing.com – Federal Reserve Governor Michelle Bowman said on Tuesday she remains cautious about rate cuts and warned against overreacting to recent data showing easing inflation as upside risks remain.

“I will continue to exercise caution in considering adjustments to current policy,” Bowman said Tuesday in a prepared speech to a banking group in Alaska.

While Bowman is confident that current monetary policy will help bring inflation toward the two percent target, he warned that upside risks to inflation remain.

“I still see some upside risks to inflation as supply conditions have now largely normalized and further improvements in supply are less likely to offset price pressures from rising geopolitical tensions, additional fiscal stimulus and increased demand for housing due to immigration,” Bowman added.

Given the upside risks to inflation, the Fed chief expressed concern about “overreacting to a single data point” as this risks “undermining further progress in reducing inflation.”

However, if there is further progress in inflation and price pressures towards the two percent target are shown to be easing, Bowman continued, “it would be appropriate to gradually lower the policy rate to prevent monetary policy from becoming too restrictive of economic activity and employment.”

Bowman dismissed expectations that the widely expected September rate cut could be followed by a series of further rate cuts, saying: “It is important to note that monetary policy does not follow a pre-set course.”

The Fed chief also downplayed the weakness in the labor market seen in the July report, saying the rise in the unemployment rate was “due in large part to workers who were temporarily laid off and are likely to be rehired in the coming months.”