Federal Reserve Board Governor Bowman stated that the Fed should gradually lower interest rates at a "moderate" pace. She believes that inflation risks still exist and the labor market has not yet shown significant signs of weakness. Bowman said she would continue to take a cautious approach to further interest rate cuts.

Bowman told the Kentucky Bankers Association on Tuesday, "In terms of the risks of achieving our dual mandate, I continue to believe that there are greater risks to price stability, especially as the labor market continues to approach estimates of full employment."

These remarks highlight the differences between Bowman and other Fed officials who have recently described the roughly balanced or employment-leaning risks of achieving the Fed's dual goals of full employment and stable inflation.

Bowman opposed the Fed's decision to cut interest rates by 50 basis points last week - she prefers a smaller rate cut, making her the first dissenting Fed board member since 2005.

She said on Tuesday that her inclination towards a more "moderate" approach as the Fed begins its rate-cutting cycle is based on several considerations.

She stated: "In my view, starting the rate-cutting cycle with a decrease of 25 basis points will better reinforce the strength of the economic conditions, while also confidently recognizing the progress we are making towards our goals."

Fed Chair Powell emphasized that the larger rate cut is to maintain a strong labor market, calling it an adjustment to ensure the Fed does not fall behind.

Bowman pointed out that she appreciates Powell responding directly to her concerns at the press conference, namely that significant actions may inadvertently convey concerns about the underlying economic conditions, or lead market participants to expect the future to continue at such a pace.

Bowman stated, "Unless there are clear trends indicating that spending growth and the labor market have significantly deteriorated, I won't draw too many signals from recent labor market data." Bowman said wage growth indicates the labor market remains tight, and recent upticks in the unemployment rate may be due to temporary factors.

However, if data shows a substantial softness in the job market, Bowman said she "will support taking action and adjusting monetary policy according to our inflation mandate."

She stated that core inflation, excluding the volatile food and energy categories, remains "unnervingly" high above the Fed's 2% target.

She said, "By moving at a moderate pace towards a more neutral policy stance, we will be better positioned to further reduce inflation to the 2% target, while closely monitoring changes in the labor market conditions."

Updated forecasts show that although most officials support a 50 basis point rate cut at the last two meetings of the year, there is disagreement among policymakers on the future path: 7 out of 19 officials expect only a 25 basis point cut in 2024, while two oppose further actions this year.

On Tuesday, Bowman stated that her estimate of the neutral policy rate - the rate that does not stimulate or restrain the economy - is much higher now than before the pandemic.

She said, "With a higher neutral estimate, we will reach our destination faster at any given pace of rate cuts."

Editor/Emily