On Tuesday, at the September meeting of the Federal Reserve where she cast the only dissenting vote, Federal Reserve Board Governor Bauman spoke out again. She believes that the Federal Reserve should lower interest rates at a moderate pace, considering that the risk of inflation upside remains, and there is no clear weakness in the US labor market.

Bauman pointed out, "In terms of risks to achieving the dual mandate, I continue to see greater risks to achieving price stability, especially as the labor market continues to approach estimates of full employment."

Bauman's remarks highlight the stark contrast between her and other Federal Reserve officials. Most Fed officials have recently believed that the risks facing the dual goals of maximizing employment and stable inflation are generally balanced, or even more tilted towards the greater risks facing employment.

The Federal Reserve initiated its first rate cut in four years last Wednesday, with a substantial 50 basis point decrease. Among the voters, only one dissented against the 50 basis point cut, while Federal Reserve Board Governor Bauman supported a 25 basis point cut. Bauman became the first Fed official to vote against a rate cut since 2005.

Bauman stated that when the Fed starts cutting rates, she tends to take a more cautious approach, reflecting several considerations:

In my view, beginning a rate cut cycle with a quarter-point reduction will better strengthen the robust economic conditions and also confidently acknowledge the progress we have made towards our goals.

The core inflation rate (excluding volatile categories such as food and energy) remains uncomfortably above the Fed's 2% target.

By moving towards a more neutral policy stance with a steady pace, we will be more capable of further lowering the inflation rate to the 2% target, while closely monitoring changes in the labor market situation.

Until clear trends indicate a significant weakening of spending growth and labor market conditions, I will not pay excessive attention to recent labor market data. Wage growth indicates that the labor market remains tight, and temporary factors may have caused the recent rise in the unemployment rate.

However, if the data shows a significant weakening in the US job market, action will be supported, and monetary policy will be adjusted as needed while considering the inflation task.

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

Bowman expressed gratitude for Powell directly addressing her concerns at the press conference, namely that a 50 basis point rate cut may inadvertently signal concerns about the underlying economic conditions, or lead market participants to expect a fast pace of future rate cuts.

The latest forecasts indicate that while the median of the dot plot shows Fed officials supporting an additional 50 basis points of rate cuts at the last two meetings this year, policymakers have significantly differing views on the future interest rate path: out of 19 officials, 7 expect only a further 25 basis point cut in 2024, with two opposing any further action this year.

Bowman stated on Tuesday that her estimate of the neutral policy rate (the level of rates that neither boosts nor restricts the economy) is much higher than before the COVID-19 pandemic. 'If the estimate for the neutral rate is higher, then we will reach our destination faster for any given rate cut speed.'

Bowman's estimate of the neutral rate also differs significantly from some of her colleagues. On Monday, several senior Fed officials emphasized that the current rate level is far from the neutral rate.

Bowman issued a statement last Friday explaining her dissent on the 50 basis point rate cut by the Federal Reserve in September. In the statement, she suggested that a significant rate cut could be seen as the Fed declaring a preemptive victory against high Qualcomm inflation issues. She prefers to gradually ease FOMC's monetary policy to avoid reigniting consumer demand. "I believe that moving cautiously towards a more neutral policy stance will ensure further reduction of the inflation rate to the 2% target."

Editor/Lambor