Michelle Bowman, director of the Federal Reserve, said recently that she still believed that the Federal Reserve would need to further raise interest rates to curb inflation, but she also added that since September, the soaring yield of US treasury bond bonds has led to a tightening of the financial environment.
I still anticipate that we will need to further raise the federal funds rate in order to timely lower inflation to the target of 2%, "Bowman said in a speech prepared for an event hosted by the Ohio Bankers League on Tuesday.
Last week, Federal Reserve policymakers kept the federal funds rate in the range of 5.25% to 5.5%. Bowman said that the current interest rates "seem to be restrictive, and the financial environment has been tightening since September
Bauman said that the tightening of the financial environment was partly due to the recent surge in the yield of long-term treasury bond. She pointed out that the yield of long-term treasury bond may fluctuate over time. She added that it is too early for policymakers to understand the impact of financial tightening on the economy and inflation.
Bowman also stated that there is abnormally high uncertainty in the economy, especially considering recent unexpected data, data revisions, and ongoing geopolitical risks. He will closely monitor the upcoming data to assess the impact of policies on the economic outlook.
As one of the most hawkish policy makers at the Federal Reserve, Bowman stated that if future data shows stagnant inflation progress and "may not be enough to timely reduce inflation to 2%," she still tends to support raising interest rates at future meetings.
She stated that the latest employment report "shows healthy growth in the job market". The report shows that after adding 297000 job positions in September, there were 150000 job positions added in October.
The Fed's Eagle Wind Will Not Disappear
The Federal Reserve held interest rates unchanged at last week's policy meeting for the second time in a row. Some market participants believe that the comments of Federal Reserve Chairman Powell may indicate that as inflation rates sharply decline from the summer of 2022, and the job market appears to be cooling, unemployment rates may slightly rise, the Federal Reserve may stop raising interest rates.
Nevertheless, the internal hawk wind within the Federal Reserve remains strong.
On Tuesday, Minneapolis Fed Chairman Neel Kashkari stated that Fed policymakers have not yet won the battle against inflation and will consider adopting more monetary tightening measures if necessary. The day before, he pointed out that it would be better to excessively tighten monetary policy than to do enough in taking measures to lower inflation to the central bank's target of 2%.
Dallas Fed President Logan said at a meeting in Kansas City on the same day, "We have seen some promising progress in inflation, but inflation is still too high. For me, the core issue is whether the financial situation we are seeing today is sufficiently restrictive to bring inflation back to 2% in a timely and sustainable manner