Federal Reserve Governor Michelle Bowman delivers her first public remarks as a federal politician at an American Bankers Association conference in San Diego, California February 11, 2019.
Anna Sapphire | Reuters
Federal Reserve Governor Michelle Bowman said on Saturday she supports the central bank’s recent large rate hikes and thinks they are likely to last until inflation is subdued.
The Fed raised interest rates by 0.75 percentage point at its last two policy meetings, the largest increase since 1994. These measures were aimed at curbing inflation, which was at its highest level in more than 40 years.
In addition to the increases, the rate-setting Federal Open Market Committee indicated that “ongoing increases… will be appropriate,” a view Bowman said she endorses.
“In my opinion, similarly sized hikes should be on the table until we see a consistent, meaningful and durable decline in inflation,” she added in prepared comments in Colorado for the Kansas Bankers Association.
Bowman’s comments are the first from a member of the Board of Governors since the FOMC approved the latest rate hike last week. Last week several regional presidents said they expect interest rates to continue rising aggressively until inflation falls from its current annual rate of 9.1%.
Markets are pricing a 68% chance of a third straight move by 0.75 after Friday’s jobs report, which showed a 528k job increase in July and a 5.2% yoy wage increase in July, both higher than expected percentage points at the next FOMC meeting in September, according to data from the CME Group.
Bowman said she will be closely monitoring upcoming inflation data to gauge exactly how much she thinks interest rates should rise. However, she said the latest data cast doubt on hopes that inflation has peaked.
“I’ve seen little, if any, concrete evidence to support this expectation and I need to see clear evidence of this decline before including a decline in inflationary pressures in my forecast,” she said.
In addition, Bowman said she sees “a significant risk of high inflation next year for necessities like food, housing, fuel and vehicles.”
Her comments come after other data showed that US economic growth, as measured by GDP, contracted for two consecutive quarters, which fits a common definition of a recession. While she said she expects growth to pick up in the second half of the year and “moderate growth in 2023”, inflation remains the biggest threat.
“The greater threat to the strong labor market is excessive inflation, which, if sustained, could lead to further economic slowdown and risk a prolonged period of economic weakness coupled with high inflation, such as we experienced in the 1970s . Certainly we must deliver on our commitment to bringing down inflation and I will remain steadfastly focused on that task,” Bowman said.