At a bankers' conference in Alaska, Federal Reserve Governor Bowman expressed a cautious stance on the future direction of monetary policy. She noted that, based on current policies, inflation is expected to continue declining. If future data continues to show inflation moving towards the Fed's 2% target, it would be appropriate to gradually lower the federal funds rate to prevent excessive monetary tightening.
Bowman's remarks suggest that she remains one of the more hawkish members of the Federal Reserve. Although she did not reiterate the statement "prepared to raise rates further if necessary," she also did not explicitly indicate support for a rate cut at the next policy meeting. She emphasized that there has been "further progress in curbing inflation" in recent months but also warned that upside risks remain, including "escalating geopolitical tensions, additional fiscal stimulus, and increased housing demand driven by immigration."
Bowman also stated that patience is needed to avoid overreacting to single economic data points, which could disrupt the continued progress in reducing inflation. She specifically mentioned the weak non-farm payroll report in July, with the unemployment rate rising to 4.3%, sparking concerns about an economic recession.
Bowman highlighted that the latest employment data showed inconsistencies that warrant caution. While the strong hiring performance over the past year may have been overestimated, the rise in the unemployment rate might also exaggerate signs of economic cooling. She pointed out that the increased difficulty in data measurement and the frequency and magnitude of data revisions in recent years have made assessing the current economic situation and predicting its future trajectory more complex. "Therefore, I will remain cautious about adjusting the current policy stance."
Notably, the U.S. Bureau of Labor Statistics will release the preliminary report on non-farm employment and wage census for the first quarter of 2024 on Wednesday, Eastern Time. Economists at JPMorgan expect non-farm employment data for this year to be revised down by approximately 360,000, while Goldman Sachs and Wells Fargo anticipate a downward revision of at least 600,000.
If the revision exceeds 501,000, it would be the largest downward adjustment in the past 15 years, indicating that the labor market is cooling more than expected. Such data could influence the tone of Federal Reserve Chairman Powell's speech in Jackson Hole, Wyoming.
Currently, the market widely expects the Federal Reserve to cut rates at the September meeting, with discussions focusing on a 25-basis-point cut or a larger 50-basis-point reduction. Additionally, Bowman stated that the labor market continues to relax, showing a better balance of labor supply and demand. "While we are mindful of the potential risks of labor market weakness, we must also remain vigilant about our mandate for price stability."
Just a day earlier, Minneapolis Federal Reserve President Kashkari also expressed support for a rate cut in September, but he believes the cut should not exceed 25 basis points.
