Bowman, a Fed governor, discusses her concerns about inflation and the dissent on the rate vote.

• Michelle Bowman, the Fed Governor, stated on Tuesday that she believed her colleagues should have adopted a more cautious approach to the 0.5% interest rate reduction that occurred last week.
• "Our price-stability mandate may not have been fully achieved yet, as the jumbo cut could be seen as a premature declaration of victory," she stated to a bankers' group in Kentucky.

Michelle Bowman, a Federal Reserve Governor, stated on Tuesday that she believed her colleagues should have adopted a more cautious approach to the 0.5% interest rate reduction last week, as she is concerned that inflation may resurface.

Since 2005, no governor had dissented from an interest rate decision, but Bowman was the lone dissenter from the Federal Open Market Committee's decision to lower benchmark interest rates for the first time in more than four years.

Bowman explained that reducing the inflation rate by half a percentage point, or 50 basis points, posed several risks to the Fed's objectives of maintaining low inflation and full employment.

The jumbo cut "may be seen as a premature declaration of victory on our price-stability mandate. Achieving our mission of returning to low and stable inflation at our 2 percent goal is crucial to creating a robust labor market and an economy that benefits everyone in the long run," she stated in a speech to a group of bankers in Kentucky.

The Fed's preferred inflation rate is 2.5%, which is above its 2% target, while core inflation, excluding food and energy, is at 2.6%.

Bowman supported a reduction, but she wanted the Fed to lower by a quarter percentage point, which is more in line with traditional central bank moves. The FOMC cut by half a point in March 2020 during the early days of the Covid pandemic and before that during the global financial crisis in 2008.

Bowman raised several specific concerns about the big move, including the possibility that Fed officials see "some fragility or greater downside risks to the economy," that markets might expect a series of large cuts, that large amounts of sideline cash could be put to work as rates fall, stoking inflation, and her belief that rates won't need to come down as much as her fellow policymakers have indicated.

By adopting a neutral policy stance and moving at a measured pace, we can better position ourselves to achieve our goal of reducing inflation to 2 percent, while closely monitoring the evolution of labor market conditions, she stated.

Fed officials have justified the cut in recent statements by citing a decrease in inflation and a softening labor market. At the last meeting, individual policymakers predicted another half percentage point in cuts this year and another full point in 2025. However, market pricing is more aggressive, anticipating 2 full percentage points in cuts through next year.

The Fed's target range for its overnight borrowing rate is now 4.75%-5%.

Bowman stated that she respects the committee's decision and emphasized that policy is not set in stone. She added that the labor market has softened slightly but remains strong, as indicated by the data.

She stated that she sees more risks to price stability, particularly with the labor market being close to full employment estimates.