Fed’s Bowman says more big rate hikes on table if inflation will not cool

By Michael S. Derby

NEW YORK (Reuters) – Federal Reserve Governor Michelle Bowman said on Wednesday that if high inflation does not start to wane she will continue to support aggressive rate rises aimed at taming price pressures.

“Inflation is much too high, and I strongly believe that bringing inflation back to our target is a necessary condition for meeting the goals mandated by Congress of price stability and maximum employment on a sustainable basis,” Bowman said in the text of a speech to be delivered before a gathering in New York City.

The policy maker said Fed rate rises this year, which have been very large relative to the pace of past rate rise campaigns, had her full support.

What happens with inflation will determine what is next for the Fed, Bowman said. “If we do not see signs that inflation is moving down, my view continues to be that sizable increases in the target range for the federal funds rate should remain on the table,” she said.

But if inflation starts to cool, “I believe a slower pace of rate increases would be appropriate,” Bowman said.

She also noted she does not see any rate cuts ahead for now. “To bring inflation down in a consistent and lasting way, the federal funds rate will need to move up to a restrictive level and remain there for some time,” Bowman said.

The central banker said it was “not yet clear” how far the Fed will need to increase the cost of short-term credit and how long it will need to maintain a restrictive policy stance.

Bowman spoke following the release earlier in the day of meeting minutes from the central bank’s late September policy meeting. Then, policy makers raised their overnight target rate by 0.75 percentage point, lifting the federal funds target rate to between 3% and 3.25%. They also penciled in more increases as they contend with the strongest levels of inflation seen in decades.

Fed forecasts from the September gathering saw officials pencil in a 4.6% federal funds rate by next year. Fed officials have all been on board with the Fed’s inflation fight, and the meeting minutes said many officials “emphasized the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action.”

Fed officials are pressing forward with aggressive increases even as worries are mounting that their actions are driving up financial market stresses and are boosting the risk that something goes awry.

Bowman also said in her remarks that while the Fed has had success in the past giving guidance about the outlook for monetary policy, the current period is uncertain enough to limit the power of that tool.

“Under current circumstances, however, the best we can do on the public communications front is, first, to continue to stress our unwavering resolve to do what is needed to restore price stability,” Bowman said.

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