CHARLOTTESVILLE, Virginia – On Wednesday, two Federal Reserve governors laid out competing visions of where U.S. monetary policy may be heading, with one citing ongoing concerns about inflation and another expressing confidence that price pressures will continue to ease.
The separate speeches by Michelle Bowman and Lisa Cook show the set of concerns central bank officials will be weighing as they decide whether to approve another quarter-percentage-point reduction in the benchmark policy rate at their December 17-18 meeting.
Once seen as highly likely, investors now put just 55% odds on a rate cut next month. Recent data showing strong economic growth and sticky inflation have partly driven that shift in expectations, and Donald Trump’s victory in the November 5 presidential election has added to the sense of risk and uncertainty around the path of inflation.
Bowman, appointed to the Fed’s Board of Governors by Trump during his first term in the White House, said in comments to an economic forum in West Palm Beach, Florida, that with inflation still elevated and moving sideways in the last few months, the Fed needed to be cautious.
“We have seen considerable progress in lowering inflation since early 2023, but progress seems to have stalled in recent months … I would prefer to proceed cautiously in bringing the policy rate down to better assess how far we are from the endpoint,” Bowman said, noting that the Fed’s Nov. 7 policy statement “included a flexible, data-dependent approach, providing the (Federal Open Market) Committee with optionality in deciding future policy adjustments.”
Bowman said she agreed that improvements in inflation warranted lower rates. But she dissented against the half-percentage-point cut approved by the Fed in September, favoring a smaller quarter-percentage-point reduction, and says the central bank should be wary of cutting rates too far, too fast, and allowing inflation to resurge.
In remarks at the University of Virginia in Charlottesville, Cook did not explicitly endorse a rate cut next month and included the usual policymaker caveats that monetary policy was not on a predetermined course.
But Cook, who was appointed to the Fed’s board by President Joe Biden in 2022, also voiced confidence in a continued easing of price pressures that are now largely confined to the housing sector. She estimates that inflation, while stalled of late, would drop to around 2.2% next year, just above the Fed’s 2% target, and continue lower from there.
The personal consumption expenditures price index stripped of food and energy costs, considered a good guide to underlying price trends, is estimated to have been 2.8% in October and has changed little in the last four months.
Still, “the totality of the data suggests that a disinflationary trajectory is still in place and that the labor market is gradually cooling,” Cook said. “Going forward, I still see the direction of the appropriate policy rate path to be downward.”
Speaking later Wednesday, Boston Fed leader Susan Collins also expressed support for more rate cuts amid diminishing inflation pressures but did not offer firm guidance as to how that might play out.
“I expect additional adjustments will likely be appropriate over time, to move the policy rate gradually from its current restrictive stance back into a more neutral range,” Collins said in the text of a speech prepared for delivery before the University of Michigan’s Gerald R. Ford School of Public Policy.
