(Reuters) -Federal Reserve Governor Michelle Bowman on Tuesday said she remains cautious about any shift in the U.S. central bank's policy because of what she sees as continued upside risks for inflation, warning that overreacting to any single data point could jeopardize the progress already made.
Bowman's prepared remarks to a gathering of bankers in Alaska reflect her continued stance as one of the Fed's more hawkish policymakers. While she refrained for a second time from saying she stood ready, if necessary, to further lift rates, as has been her position previously, she offered little indication she is ready to endorse a rate cut at the Fed's Sept. 17-18 meeting, as is now widely expected.
Inflation should continue to fall under the current stance of policy, she said, and if inflation continues to fall sustainably toward the Fed's 2% target, "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 Bowman said "we need to be patient and avoid undermining continued progress on lowering inflation by overreacting to any single data point" - an apparent reference to the change in focus among several Fed officials in the aftermath of a July employment report that showed slower hiring and a rise in the unemployment rate to 4.3% - a post-pandemic high.
Inconsistencies in the latest employment report warrant caution, she said, noting that while the strength of hiring over the last year may have been overstated, it is also possible that the rise in the jobless rate may exaggerate the level of labor market cooling underway.
"Increased measurement challenges and the frequency and extent of data revisions over the past few years make the task of assessing the current state of the economy and predicting how it will evolve even more challenging," Bowman said. "I will remain cautious in my approach to considering adjustments to the current stance of policy."
Financial markets now fully expect the Fed to cut its benchmark interest rate next month from the current 5.25%-5.50% range where it has been since July 2023. The question is over what size that first cut will be, with current market odds favoring a quarter-percentage-point reduction over a half-percentage-point move.