By Howard Schneider
WASHINGTON (Reuters) - The U.S. economy is not at the point where the Federal Reserve should reduce interest rates, Fed Governor Michelle Bowman said on Thursday, and while the baseline remains for falling inflation and eventual rate cuts, tighter monetary policy still can't be ruled out.
"While the current stance of monetary policy appears to be at a restrictive level that will bring inflation down to 2% over time, I remain willing to raise the federal funds rate at a future meeting should the incoming data indicate that progress on inflation has stalled or reversed," Bowman said in remarks to a New Jersey Bankers group that largely focused on her views about bank regulation and supervision.
Bowman, who has been among the more hawkish policymakers in her views on inflation and inflation risks, said she did feel the current benchmark policy rate, held at the 5.25% to 5.5% range by the Fed since July, seemed "to be appropriately calibrated to reduce inflationary pressures...My baseline outlook continues to be that inflation will decline further with the policy rate held steady."
Yet she also noted forces that could push inflation higher, including overseas conflicts that could influence commodity prices, but also closer-to-home dynamics like the recent loosening of financial conditions in the U.S., and ongoing high wage growth among U.S. firms.
"Should the incoming data continue to indicate that inflation is moving sustainably toward our 2% goal, it will eventually become appropriate to gradually lower our policy rate to prevent monetary policy from becoming overly restrictive," Bowman said. "In my view, we are not yet at that point. Reducing our policy rate too soon could result in requiring further future policy rate increases to return inflation to 2% over the longer run."