The Federal Reserve is not yet at the point where it can start gradually lowering interest rates, Fed governor Michelle Bowman said on Friday.
“In my view, we are not yet at that point,” Bowman said in a speech to a group of bankers in Hawaii.
On Wednesday, Bowman and 11 other top Fed officials voted unanimously to keep the Fed’s benchmark rate unchanged in a range of 5.25% to 5.5%. The Fed has kept rates steady since July.
Bowman said her “baseline outlook” is that inflation will decline further even as the Fed holds rates unchanged, and that it would eventually become appropriate to move rates lower.
At the same time, Bowman said she has not ruled out another rate hike.
“I remain willing to raise the federal-funds rate at a future meeting should the incoming data indicate progress on inflation has stalled or reversed,” Bowman said, adding that she will be watching the incoming data carefully, including the revisions to 2023 inflation data set to be released on Feb. 9.
Overall, Bowman said she would be “cautious” about future changes in interest-rate policy.
“Reducing our policy rate too soon could result in requiring further future policy-rate increases to return to 2% [inflation] in the longer run,” she said.
She noted “upside risks” to inflation from the conflict in the Middle East, and from continued easing in U.S. financial conditions causing a reacceleration of demand, which could cause inflation to pick up again. There is also the risk that continued tightness in labor market could lead to persistently high core service inflation, she said.
The strong January job report, which indicated an uptick in wages, suggests businesses are still raising wages for their workers to compensate for inflation, Bowman said.