Fed's Historic Dissenter Bowman Says Smaller Interest Rate Cut Was Justified: 'We Have Not Yet Achieved Our Inflation Goal'

Federal Reserve Governor Michelle W. Bowman defended her decision on Friday to withhold support for a 50-basis-point interest rate cut during this week’s Federal Open Market Committee’s meeting.

Instead, Bowman advocated for a more measured approach and was the lone vote for a 25-basis-point reduction, citing the ongoing issue of inflation remaining above the Fed's 2% target.

Historic Dissent Breaks Two Decades Of Unanimous Fed Calls

Bowman's dissent marked a historical moment for Federal Reserve rate moves, as it was the first time since 2005 that a Fed governor openly disagreed with a rate decision, signaling the emergence of a crack within the Fed’s once-unanimous board.

Bowman said a more gradual move toward a neutral monetary policy stance would better suit economic conditions.

“The normalization in labor market conditions is necessary to help bring wage growth down to a pace consistent with 2 percent inflation,” Bowman said.

She also stressed that moving too aggressively with rate cuts might signal a “premature declaration victory” over inflation, potentially undermining the Fed’s broader goals.

Bowman cautioned that inflation, particularly core personal consumption expenditures prices, remains too high, as it continues to hover above 2% target. “We have not yet achieved our inflation goal,” she said.

Waller’s Contrasting Optimism On Inflation

Bowman's remarks, however, contrasted sharply with those of Fed Governor Christopher Waller.

“Inflation is softening much faster than I thought it was going to,” Waller told CNBC, adding that he anticipates the August Personal Consumption Expenditures monthly inflation will come in around 0.1%, with the 12-month annualized rate potentially falling below 2%.

Waller's more optimistic outlook on inflation led him to support a 50-basis-point rate cut, believing it was justified given the data. Nonetheless, he noted that if future economic data continues to align with expectations, he would support a 25-basis-point cut, but would be open to deeper cuts if inflation undershot expectations.

Market Reactions

Fed remarks on Friday had little impact on markets, with both the dollar and Treasury yields holding broadly steady.

The U.S. stock market had a negative session on Friday, with the S&P 500 index, as tracked by the SPDR S&P 500 ETF Trust SPY, down 0.6%.

Gold prices, as monitored through the SPDR Gold Trust GLD, made fresh all-time highs above $2,600 per ounce.

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