Fed Governor Bowman indicates that the December interest rate cut should be the final one.

• Michelle Bowman, a Federal Reserve Governor, stated on Thursday that she backed the recent interest rate reductions. However, she added that the December cut should be the last step in the easing process.
• Despite the significant percentage points of cuts from September through December, there are still potential risks to inflation, she stated.
• This week, other Fed speakers presented opinions that differed from Bowman's, who is known for being one of the committee's more conservative members.

Michelle Bowman, a Federal Reserve Governor, stated on Thursday that she backed the recent interest rate reductions but does not believe it is necessary to make any additional cuts.

Bowman stated in her speech to California bankers that her concerns about inflation being "uncomfortably above" the Fed's 2% goal led her to believe that the quarter percentage point reduction in December should be the last one for the current cycle.

The central banker supported the December policy action because it marked the final step in the policy recalibration phase, according to her prepared remarks. Bowman stated that the current policy rate is close to what she considers "neutral," meaning it neither supports nor hinders growth.

Although progress has been made, there are "upside risks to inflation," Bowman stated. The Fed's preferred inflation gauge showed a rate of 2.4% in November but was at 2.8% when excluding food and energy, a core measure that officials view as a better long-run indicator.

In 2023, the rate of inflation decreased significantly, but this progress has halted, with core inflation remaining above the Committee's 2 percent target.

The Fed reduced its key borrowing rate by a full percentage point from September to December, despite concerns among FOMC members about inflation running high, though most expressed confidence it would eventually return to the 2% target in 2027.

This week, other Fed speakers offered opinions that differed from Bowman's, who is known for being one of the committee's more hawkish members and advocating for a more aggressive approach to controlling inflation through higher interest rates.

In a speech in Paris, Governor Christopher Waller expressed a more optimistic outlook on inflation. He stated that estimated prices used to calculate inflation rates are keeping rates high, but observed prices are showing moderation. As a result, he expects the Fed to make further reductions to its main policy rate, which is currently between 4.25%-4.5%.

At the December FOMC meeting, the Fed priced in the equivalent of two quarter-point cuts this year, instead of the four expected at the September meeting.

As a governor, Bowman is a permanent voter on the FOMC and will have a say in policy this year. Additionally, she is among the top contenders to be named the vice chair of supervision for the banking industry after President-elect Trump assumes office in January.

Bowman advised her colleagues to avoid "jumping to conclusions" about Trump's actions on tariffs and immigration, as indicated in the December minutes. Officials expressed concerns about the potential impact of these initiatives on the economy.

Bowman raised concerns about relaxing policy too much. She pointed to robust stock market growth and increasing Treasury yields as evidence that interest rates were curbing economic activity and dampening inflation.

She stated that she still favors a cautious and gradual approach to adjusting policy due to the given considerations.