On Friday, September 20, Federal Reserve Governor Michelle Bowman stated that she does not support a 50-basis-point interest rate cut. Instead, she preferred a 25-basis-point cut because inflation remains above the 2% target, which could lead the public to believe that the Federal Reserve has prematurely declared victory over inflation.
On Wednesday, September 18, 2024, I opposed the Federal Open Market Committee’s decision to lower the target range for the federal funds rate by half a percentage point. As noted in the committee’s post-meeting statement, I preferred a reduction in the target range for the federal funds rate of only a quarter percentage point.
Given the progress made since mid-2023 in reducing inflation and cooling the labor market, I agree that it was appropriate at this meeting to recalibrate the level of the federal funds rate and begin moving toward a more neutral policy stance. However, in my view, the first step in this process should have been smaller. The U.S. economy remains strong, with solid underlying economic activity and a labor market approaching full employment. Although employment appears to have softened, layoffs remain low. I believe that normalizing labor market conditions is necessary to help slow wage growth to a pace consistent with the 2% inflation rate in line with productivity growth.
Inflation remains above our 2% target, with core personal consumption expenditures (PCE) prices still rising at a rate exceeding 2.5% over the past twelve months. While it is important to acknowledge the significant progress made in reducing inflation, as long as core inflation remains at 2.5% or higher, I see a risk that the broader policy action taken by the committee could be interpreted as a premature declaration of victory in achieving our price stability mandate when we have not yet reached our inflation target. I believe that moving at a measured pace toward a more neutral policy stance would ensure further progress and stability in bringing inflation down to our 2% target.
Although I opposed the decision in our last meeting, I respect and appreciate my colleagues’ preference to begin lowering the federal funds rate with a larger initial cut to the target range.
