Fed's Bowman cautious on rate cuts as upside risks to inflation to persist

Investing.com -- Federal Reserve Governor Michelle Bowman said Tuesday  she remains cautious on interest rate cuts and warned against overreacting to recent data showing easing inflation as upside risks remain a threat.

"I will remain cautious in my approach to considering adjustments to the current stance of policy," Bowman said in a prepared remarks Tuesday to a banking group in Alaska.

While Bowman believes that the current level of monetary policy will help bring inflation to the 2% target, she warned of that upside risks to inflation persist.  

"I still see some upside risks to inflation as supply conditions have now largely normalized and any further improvements to supply seem less likely to offset price pressures arising from increasing geopolitical tensions, additional fiscal stimulus, and increased demand for housing due to immigration," Bowman added.

Given the upside risks to inflation, the Fed governor expressed concern against "overreacting to any single data point," which risks "undermining continued progress on lowering inflation."

If there is further progress on inflation, however, showing that price pressures are slowing  toward the 2% target, Bowman added, that it would "become appropriate to gradually lower the federal funds rate to prevent monetary policy from becoming overly restrictive on economic activity and employment."

Pushing back against expectations that a slew of rate cuts could follow following the widely expected September rate cut, Bowman said "it is important to note that monetary policy is not on a preset course."

The Fed governor also downplayed the weakness in the labor market seen in July report, saying the rise in the unemployment rate was "largely accounted for by workers who experiencing a temporary layoff and are more likely to be rehired in coming months."