Fed's Bowman Says Inflation And These 2 Factors Could Guide Future Monetary Policy Action, Even As She Hints At More Future Rate Hikes

The next Federal Reserve rate-setting meeting is scheduled for Sept. 19-20, and the market has priced in a pause at the meeting. A Fed official, however, hinted that the pause may not happen and that the central bank may have more work to do, according to CNBC.

What Happened: Additional rate increases will likely be needed to bring inflation on a path down to the Federal Open Market Committee's 2% target, said Fed Governor Michelle Bowman on Saturday in remarks prepared for the 2023 CEO and Senior Management Summit Meeting sponsored by the Kansas Bankers Association.

Bowman said she supported the decision to increase rates in July due to strong economic data. The economy and labor market have remained strong even amid the Fed’s tightening and the growth of real GDP at an annual rate of over 2% in the first half of the year, exceeding forecasters' expectations, she said.

Consumer spending remained robust, the housing sector is rebounding, as reflected by the accelerating house prices growth and a pick-up in housing starts, and the recent employment report showed a strong labor market, she added.

Despite the strain seen in the banking system earlier this year and the tightening lending standards in response to higher interest rates and funding costs, there have not been signs of a further sharp contraction in credit that could slow economic activity,  the Fed official said.

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Awaiting More Evidence: Bowman said she would continue to look for consistent evidence that “inflation is on a meaningful path down toward our 2 percent goal as I consider further rate increases and how long the federal funds rate will need to remain at a restrictive level.”

“I will also be watching for signs of slowing in consumer spending and signs that labor market conditions are loosening,” she added.

Data-Dependent: “Monetary policy is not on a preset course,” Bowman said.

“My colleagues and I will make our decisions based on the incoming data and its implications for the economic outlook,” she added.

She also said the Fed remains willing to raise the FRED rates if incoming data showed that progress on inflation has stalled.

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