In a move that could shape the economic landscape, a top Federal Reserve official hinted at more interest rate hikes if inflation persists.
Michelle Bowman, a Fed governor and a key member of the rate-setting Federal Open Market Committee (FOMC), signaled readiness to raise borrowing costs further if inflation stalls or reverses.
Speaking in London, Bowman pointed to aggressive fiscal stimulus and increased immigration as factors likely to keep U.S. prices rising faster than in other wealthy nations.
Her remarks come amid a broader debate within the Fed on whether to cut interest rates this year, a decision complicated by November’s presidential election.
Bowman’s cautious stance contrasts with fellow Fed governor Lisa Cook, who, speaking in New York, forecasted a sharper fall in inflation next year, suggesting rate cuts might be necessary to maintain economic balance.
President Joe Biden has spotlighted the economy in his re-election campaign, emphasizing efforts to curb inflation amid voter concerns over high costs of essentials like fuel, food, and mortgages.
U.S. inflation soared to over 7% in 2022, spurred by the post-pandemic recovery, prompting the Fed to hike rates to a two-decade high of 5.25-5.5%. Although inflation has since eased to 2.7%, it remains above the Fed’s 2% target.
Despite Bowman’s hawkish reputation, she indicated that another rate rise this year isn’t the most probable scenario.
Yet, four out of 19 FOMC officials have ruled out any rate cuts this year, while another seven predict just one quarter-point cut, likely pushing a decision to December.
The remaining eight members foresee two cuts, noting signs of a weakening U.S. economy and easing price pressures.
Investors are betting on a quarter-point cut in mid-September, the Fed’s last meeting before the election. However, Bowman warned of “upside risks” to inflation from looser financial conditions and federal stimulus potentially boosting demand.
The Congressional Budget Office projects a 7% fiscal deficit of the U.S. output this year, with immigration possibly driving up housing costs due to lagging construction.
Cook, on the other hand, expects housing inflation to ease by 2025, with shorter-term rates declining as consumers resist higher prices.
Retailers are starting to lower prices on some items, and higher-income shoppers are turning to discount stores, according to Cook.
This trend contrasts with G7 counterparts like Canada and the Eurozone, which have started to cut borrowing costs.
Bowman noted the divergence between U.S. and other central banks could widen, attributing it to the U.S.’s more open immigration policy and larger discretionary stimulus since the pandemic.
As the Fed navigates these economic crosscurrents, its decisions will undoubtedly impact the broader market and Main Street alike, underscoring the complex dance between monetary policy and economic realities.
You May Also Like:
