Federal Reserve Governor Bowman Suggests Further Rate Hikes to Achieve 2% Inflation Target

According to Yahoo News, Federal Reserve Governor Michelle Bowman stated on Tuesday that the U.S. central bank may need to raise borrowing costs further to bring inflation back down to its 2% target over a reasonable period. In her prepared remarks to a banking association in Salt Lake City, Utah, Bowman said, "My baseline economic outlook continues to expect that we will need to increase the federal funds rate further to keep policy sufficiently restrictive to bring inflation down to our 2% target in a timely way." This statement comes after the Fed kept its benchmark overnight lending rate unchanged in the 5.25%-5.50% range for the second consecutive policy meeting earlier this month. Fed Chair Jerome Powell has indicated that the central bank is prepared to raise interest rates again, but only if progress on achieving the 2% inflation target falters. However, Bowman has consistently been among a small minority of policymakers who believe the Fed's job is not yet done. Inflation fell to 3.4% in September by the Fed's preferred measure, down from a peak of 7.1% last summer. Other Fed policymakers have noted that it may take more time for the full impact of the rise in borrowing costs over the past 20 months to filter through the economy. Bowman expressed uncertainty about whether easing goods and labor supply will continue to lower inflation, given increased consumer spending, higher energy prices, and potential new labor shortages in the coming years tied to the trend of bringing more manufacturing back from abroad. She also mentioned signs of interest rate insensitivity among businesses that could weaken the effects of tighter monetary policy and financial conditions on economic activity and inflation. Bowman suggested that longer-term economic conditions might require the Fed's policy rate to be higher than pre-pandemic norms, stating, "In my view, given potential structural changes in the economy, such as higher demand for investment relative to saving, it is quite possible that the level of the federal funds rate consistent with low and stable inflation will be higher than before the pandemic."