Fed Governor Michelle Bowman, in a speech today, said her baseline outlook that US inflation will return to the 2% target, provided federal funds rate remains at its current level of 5.25-5.50% “for some time.” She emphasized that Fed is “still not yet at the point” where it would be appropriate to lower the policy rate.
Bowman stressed the need for Fed to “consider a range of possible scenarios” as monetary policy decisions evolve. She remains “willing” to raise interest rates “should progress on inflation stall or even reverse.”
Regarding inflation outlook, Bowman noted that since the beginning of 2024, there has been only “modest” progress on inflation. Core CPI has been running at 3.8% through May, which is significantly above the average inflation rate in the second half of last year. She expects inflation to “remain elevated for some time.”
Bowman also highlighted several upside risks to inflation. She mentioned that it is unlikely that further supply-side improvements will continue to reduce inflation. Geopolitical developments could also pose additional risks. Furthermore, increased immigration and continued labor market tightness could lead to persistently high core services inflation.
Full speech of Fed’s Bowman here.
