From CNBC: 2024-09-24 09:00:04

Federal Reserve Governor Michelle Bowman expressed concerns that the recent half percentage point interest rate cut could lead to inflationary pressures. She was the lone dissenter from the decision to lower rates. Bowman believed a smaller reduction would be more appropriate to achieve the Fed’s goal of low inflation and full employment.

Bowman argued that the 50 basis point cut could be seen as premature and could potentially lead to challenges in maintaining low inflation levels. The decision marked the first interest rate dissent in more than four years and highlighted the Fed’s goal of returning inflation to the 2% target. Inflation currently stands at 2.5%, above the target rate.

While Bowman supported a rate cut, she favored a quarter percentage point decrease, aligning more with the traditional moves by the central bank. Concerns were raised about interpreting the large cut as a sign of economic fragility, potential expectations of further cuts, and increased inflation risks. Bowman emphasized the need for a measured approach to achieve policy objectives.

The decision to cut rates was justified by easing inflation and softer labor market conditions, according to recent statements from Fed officials. The committee indicated expectations for additional rate cuts this year and in 2025. However, market perceptions lean towards a more aggressive stance, anticipating greater rate reductions through next year. The Fed’s benchmark rate now stands at 4.75%-5%.

Bowman acknowledged the committee’s decision and emphasized the importance of data-driven policy decisions. She noted that while the labor market has weakened slightly, it remains robust. Bowman highlighted the need to maintain price stability, especially with the labor market close to full employment levels. The evolution of economic conditions will guide future policy actions.

Read more: Fed Governor Bowman explains dissent on rate vote, says she’s worried about inflation