Fed’s Bowman cautious on further rate cuts as end point for cuts could be closer

Investing.com — Federal Reserve governor Michelle Bowman on Wednesday backed a cautious approach to further rate cuts amid expectations the neutral level or end point for rate cuts may be closer than previously expected at time when progress against inflation has stalled in recent months.  

“I would prefer to proceed cautiously in bringing the policy rate down to better assess how far we are from the end point, while recognizing that we have not yet achieved our inflation goal and closely watching the evolution of the labor market,” Bowman said.

Bowman was the lone Fed voting member to voting against a 50 basis point rate cut at the Fed’s December meeting, preferring the central bank to cut by 25bps.

Following the Fed’s first rate cut for this cycle in September, the central bank has suggested that it is on a path toward bringing rates down toward a neutral level – one that neither stimulus nor weighs on economic growth.

But the neutral rate or end point for the Fed’s rate cut cycle could be higher than previously expected, suggesting that the road to rate cuts could be shorter than previously expected.   

“My estimate of the neutral policy rate is much higher than it was before the pandemic, and therefore we may be closer to a neutral policy stance than we currently think,” Bowman added.

Bowman’s caution on rate cuts comes as progress on slowing has appeared to stall in recent months, and now poses greater risks to the Fed’s goal to bring inflation down to 2%. 

“I see greater risks to the price stability side of our mandate, especially while the labor market remains near full employment, but it is also possible that we could see a deterioration in labor market conditions,” Bowman said.