Fed’s Bowman warns against hiking interest rates due to inflation spike

Federal Reserve Governor Michelle Bowman warned Friday against raising interest rates to offset the current rise in prices.

With inflation running well above the central bank’s 2% target, markets expect the Fed to remain steady this year and then likely start raising rates in early 2027. Current pricing suggests there is virtually no chance of any rate cuts until at least 2027.

But Bowman said adjusting policy to offset energy-fueled inflation increases is ineffective.

“Reacting to temporarily rising energy price inflation would result in unnecessary policy restrictions and place an unnecessary burden on economic activity and labor market conditions,” the policymaker told a conference in Reykjavík, Iceland. he said.

Bowman added that research shows that “policy should not be overly aggressive” when responding to temporary energy shocks.

These comments came a day after the Commerce Department reported that the personal consumption expenditures price index (the Fed’s benchmark inflation gauge) rose 3.8% in April, and 3.3% when food and energy prices are excluded.

However, measures that eliminate extremes in the components of the indicators show that inflation is approaching the target. Dallas Fed’s “trimmed average” The inflation index shows the 12-month rate at 2.3%.

Consistent with statements by other central bankers, Bowman said the policy response depends on the duration of the conflict with Iran. If the fight drags on and inflation pressures increase, “I will also be more likely to consider shifting my approach to thinking about the balance of risk.”

Bowman added that he supported the continuation of the statements in the central bank’s latest post-meeting statement indicating that the next interest rate move could be a reduction. Three members of the Federal Open Market Committee voted against the statement, based on the so-called inclusion of advanced guidance language.