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Fed’s Bowman Highlights Inflation Risks, No Rate Cuts Expected in 2024

Quiver Editor

Federal Reserve Governor Michelle Bowman expressed concerns about several upside risks to the inflation outlook and emphasized the need to maintain high borrowing costs for an extended period. In prepared remarks delivered in London, Bowman reiterated that it is not yet appropriate to lower the policy rate, citing various economic uncertainties. She highlighted that the Federal Reserve must remain cautious in considering future policy changes and does not foresee any interest rate cuts this year, projecting them into future years instead.

Bowman pointed to multiple factors that could drive prices upward, including the unlikely prospect of further supply-side improvements, limited growth in labor force participation, and potential restrictive immigration policies. While immigration has boosted labor supply and balanced the job market, an inflow of immigrants into certain areas could increase rental costs due to low inventories of affordable housing. Bowman also noted differences between the US and other major economies, attributing these to the US’s open immigration policy and substantial fiscal support since the pandemic. Additional risks to inflation include tight labor markets, elevated wage growth, geopolitical developments, fiscal stimulus, and loosening financial conditions.

Market Overview:
  • Fed's Bowman warns of upside risks to inflation.
  • Emphasizes need to keep borrowing costs high.
  • No interest rate cuts projected for this year.
Key Points:
  • Potential restrictive immigration policies may affect labor market and rents.
  • Tight labor market and wage growth pose inflation risks.
  • US fiscal support and open immigration policy differentiate it from other economies.
Looking Ahead:
  • Future policy changes will be approached with caution.
  • Immigration and housing costs remain critical factors.
  • Continued scrutiny of inflation risks and economic conditions.

Bowman reflected on the Federal Reserve's delayed response to the surge in inflation in 2021, attributing it to years of low inflation before the pandemic, revisions to data, and changes in the Federal Open Market Committee’s monetary policy strategy in 2020. These factors, along with new forward guidance introduced in late 2020, contributed to the delay in removing monetary policy accommodation in 2021. The Fed is set to review its framework later this year to address these issues.

In her speech, Bowman also criticized the US regulators’ bank capital proposal introduced last July by the Fed and other financial regulators. She warned that the proposal could have detrimental impacts, potentially prompting banks to pull back from some services and affecting market liquidity. Bowman's remarks underscore the ongoing complexities and challenges the Federal Reserve faces in navigating economic uncertainties and ensuring financial stability.

About the Author

David Love is an editor at Quiver Quantitative, with a focus on global markets and breaking news. Prior to joining Quiver, David was the CEO of Winter Haven Capital.

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