(Bloomberg) -- Federal Reserve Governor Michelle Bowman said she expects inflation to fall further with interest rates held at their current level, but said it's too soon for Fed officials to consider cutting rates.
“In my view, we are not yet at that point,” Bowman said Friday in prepared remarks to the Southwestern Graduate School of Banking in Maui, Hawaii. She also cautioned against lowering borrowing costs too soon.
“I will remain cautious in my approach to considering future changes in the stance of policy,” she said. “Reducing our policy rate too soon could result in requiring further future policy rate increases to return inflation to 2% in the longer run.”
The Fed governor called recent reports of slowing inflation “encouraging,” and said if price increases move sustainably toward the 2% target “it will eventually become appropriate to gradually lower our policy rate to prevent monetary policy from becoming overly restrictive.”
But the economy isn't there yet, she said, and “a number of important upside inflation risks remain.” She cited geopolitical conditions that could tie up supply chains, continued easing in financial conditions that could boost demand and tight labor markets that could keep prices for services moving higher.
Bowman repeated that she remains willing to raise rates if inflation progress stalls.
The Fed held rates steady for a fourth straight meeting Wednesday and signaled that more monetary restraint was probably not needed. Fed Chair Jerome Powell doused expectations for a cut as soon as March, saying policymakers may not have “a level of confidence” that price stability would be in hand at that time.
Inflation ended 2023 at 2.6%, as measured by the Fed's preferred gauge, still above policymakers' 2% target but well below the 7.1% peak seen in mid-2022. The deceleration occurred amid resilient growth with little disruption to employment. The Bureau of Labor Statistics said Friday that non-farm payrolls rose in January by 353,000.
Bowman in November said more policy restriction was likely necessary to bring inflation back to the 2% target. But in January she changed her view and said she was considering the possibility that “inflation could decline further with the policy rate held at the current level for some time.”
Read More: Fed's Bowman Backs Eventual Rate Cuts If Inflation Falls Further
Bowman on Friday also reiterated her skepticism of a Fed proposal led by Vice Chair for Supervision Michael Barr that would raise capital requirements on big banks, which she warned could push more risky activity to the nonbank sector.
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