“I am not confident that inflation will decline in the same way as in the second half of last year.”
Inflation still “uncomfortably above” 2% target
Labor market showing signs of cooling, but uncertainties remain
Upside risks to inflation persist, including housing and geopolitical factors
Calls for patience in monetary policy decisions
Critical of rapid regulatory changes in banking sector
Advocates for thoughtful M&A framework in banking

Fed Governor Michelle Bowman delivered a wide-ranging speech touching on monetary policy, banking regulation, and liquidity concerns. On mon pol, Bowman stressed caution regarding potential rate cuts, citing persistent upside inflation risks despite recent progress. She noted that core PCE inflation averaged 3.4% annualized in H1 2024, well above the Fed’s 2% target.

Bowman highlighted several factors that could keep inflation elevated, including normalization of supply chains, geopolitical risks, and potential fiscal stimulus. She also raised concerns about immigration potentially driving up housing costs in some areas.

On the labor market, Bowman acknowledged signs of cooling but pointed to measurement challenges and data revisions complicating the assessment. She advocated for a patient approach to policy decisions, saying the Fed needs to avoid overreacting to single data points.

This is certainly a pushback on the 49% chance of 50 bps being priced in for the September meeting.

Quotable:

“Should the incoming data continue to show that inflation is moving sustainably toward our 2% goal, it will become appropriate to gradually lower the federal funds rate to prevent monetary policy from becoming overly restrictive on economic activity and employment.”

“But we need to be patient and avoid undermining continued progress on lowering inflation by overreacting to any single data point.”