Federal Reserve Director Michelle Bowman said on Thursday that it is not appropriate to cut interest rates now. She reiterated that she is not yet ready to support the central bank's interest rate cut while inflationary pressures remain high.
She stated in a speech that the current interest rate stance of the Federal Reserve is still "restrictive", and even if monetary policy remains at the current level, price pressure will cool down.
This speech is prepared for the 2024 annual meeting of the Idaho, Nevada, Oregon, and Washington Bankers Association in Stevenson, Washington.
Bauman pointed out that if inflation moves towards the Federal Reserve's 2% target, interest rate cuts may be considered; But if inflation does not slow down, they are still willing to raise interest rates again. She emphasized that caution should be maintained when weighing future changes in the Federal Reserve's interest rates.
She said, "If future data shows that inflation is continuing to move towards our 2% target, gradually lowering the federal funds rate to prevent monetary policy from becoming too strict will ultimately be appropriate. We have not yet reached the appropriate time to lower policy rates, and I continue to see some upward risks to inflation."
"But if future data shows a stagnation or reversal in inflation progress, I am still willing to raise the federal funds rate target range at future meetings," she added.
Bauman's remarks are largely consistent with her recent comments on economic and policy prospects. Her remarks come as Federal Reserve officials are seeking evidence that inflationary pressures have steadily fallen to the 2% target. Most Federal Reserve officials currently expect to cut interest rates by 0.25 percentage points this year, and many market participants believe that the Federal Reserve will cut rates at the FOMC meeting in September.
In her speech earlier this week, Bauman stated that she does not expect to cut interest rates this year and may relax next year.
Bauman stated in his speech on Thursday that overall economic activity has been strong this year, but has slowed down in the context of stagnant inflation progress. She pointed out that the easing of the financial environment poses challenges to future price trends.
"Another risk is that the loosening of the financial environment since the end of last year reflects a significant increase in stock market valuations, as well as additional fiscal stimulus measures that may increase demand, hinder any further progress, and even lead to a re acceleration of inflation," she said.
Bauman also stated that the decrease in the number of US banks is a problem. At the same time, not enough new banks have been created yet.
"In the long run, the absence of newly established banks will create a gap in the banking system, which may lead to a decrease in reliable and reasonably priced credit supply, a lack of financial services in the market, and the continued transfer of banking activities outside the banking system," she added.