The U.S. Federal Reserve’s Plan to Control Inflation
The U.S. Federal Reserve aims to lower inflation and plans to raise interest rates further, according to Governor Michelle Bowman.
Reasons for Interest Rate Hike
Bowman supports the Fed’s recent quarter-point increase in interest rates due to factors such as high inflation, robust consumer spending, a recovering housing market, and a strong labor market.
Future Rate Increases
Bowman anticipates the need for additional rate hikes to bring inflation down to the Federal Open Market Committee’s 2 percent target. She emphasizes that monetary policy is flexible and will be driven by data.
Bowman tends to have a more hawkish stance compared to some of her colleagues, indicating a belief that the Fed will need to raise rates beyond the predicted 5.6% by the end of the year.
Possible September Rate Increase
Fed Chair Jerome Powell has left the possibility of another rate hike in September open, contingent on economic indicators. Cooler data could lead to a pause in rate hikes.
Progress on Inflation
Bowman acknowledges some progress in curbing inflation, with the consumer price index showing a decrease from 9% to 3% annually. However, she emphasizes the need for consistent evidence of inflation moving toward the 2 percent goal.
Monitoring Economic Indicators
Bowman will closely monitor consumer spending and labor market conditions to determine the need for further rate increases. Despite a slowdown in hiring, unemployment remains low at 3.5%, and there are more job openings than available workers.
Banks’ Lending Activities
Bowman notes that banks are still increasing lending to households and businesses, although at a slower pace compared to when interest rates were lower. She highlights that there has been no significant contraction of credit since the banking turmoil in March.