Fed Governor Bowman Remains Cautious while More Officials Back September Rate Cut

TradingKey - On Tuesday, Fed Governor Bowman stated that she remains cautious about a policy shift due to the continued upside risks to inflation. However, she noted that if price growth continues to slow, it would be appropriate for the central bank to start gradually lowering interest rates.

Bowman stated that there has been "further progress in reducing inflation" over recent months. However, she highlighted that upside risks persist due to factors such as "heightened geopolitical tensions, additional fiscal stimulus measures, and increased housing demand driven by immigration."

Her comments underscore her position as one of the more hawkish members of the Fed's policy-setting committee. Despite not reiterating her readiness to "raise rates further if necessary," Bowman did not signal support for a rate cut at the upcoming policy meeting next month.

The previous day, Minneapolis Fed President Neel Kashkari stated that the rising likelihood of a weakening labor market makes it appropriate to discuss a potential rate cut in September.

"The balance of risks has shifted, so the debate about potentially cutting rates in September is an appropriate one to have," Kashkari told the WSJ in an interview.

Last week, St. Louis Fed President Alberto Musalem and Atlanta Fed President Raphael Bostic indicated a preference for a rate cut next month. However, strong economic data has led the market to scale back expectations of a significant rate reduction.

Recent data "has bolstered my confidence" that inflation is returning to the central bank's 2% target rate, Musalem said. "It now appears the balance of risks on inflation and unemployment has shifted ... the time may be nearing when an adjustment to moderately restrictive policy may be appropriate."

Meanwhile, in an interview published by the Financial Times last Thursday, Bostic indicated his openness to a rate cut at the September meeting, diverging from his earlier forecast of a mere quarter-point reduction in borrowing costs in the fourth quarter of this year.

"Now that inflation is coming into range, we have to look at the other side of the mandate, and there, we've seen the unemployment rate rise considerably off of its lows," he said. "But it does have me thinking about what the appropriate timing is, and so I'm open to something happening in terms of us moving before the fourth quarter."