Fed’s Bowman says ’still work to do’ on inflation

Federal Reserve Vice Chair of Supervision Michelle Bowman emphasized on Tuesday that there is still work to be done in tackling inflation. In remarks prepared for delivery to the Council on Foreign Relations in Washington, DC, Bowman pointed to inflation as her top priority, although she did not advocate for interest rate hikes. She expects price pressures to lessen next year as the impact of recent shocks subsides.

Bowman observed signs that inflation pressures are ongoing, while the labor market conditions are strengthening. This suggests that there is more work required to bring inflation closer to the Fed's 2% target. According to her, the core personal consumption expenditures price index likely increased by 3.3% in October, fueled by higher energy prices and AI-related demand.

Bowman pointed out that the lack of progress in curbing inflation is not due to the labor market, which has improved but is not overheated. She forecasted that core PCE inflation will move closer to 2% next year once the effects of AI buildout and the Middle East conflict abate or unwind. However, she cautioned that falling stock prices, rising bond yields, and a stronger dollar have tightened financial conditions, which could pose risks to the economy, which has shown strength this year.

Bowman stressed that any additional policy tightening needs to be carefully evaluated against its potential costs for interest-rate-sensitive sectors. She noted that time will reveal more about the long-term durability of momentum in AI-related demand and the evolving geopolitical risks, which could be crucial in determining the Fed's policy stance in the coming months.