By Howard Schneider

WASHINGTON (Reuters) – U.S. Federal Reserve Governor Michelle Bowman stated on Tuesday that key measures of inflation remain “uncomfortably above” the Fed’s 2% target, urging caution as the Fed considers cutting interest rates.

Bowman noted that, despite progress on inflation since its peak in 2022, it is necessary for the Fed to reset monetary policy. However, she dissented against last week’s half-point rate reduction, recommending a more “measured” quarter-point cut. She emphasized that “the upside risks to inflation remain prominent,” pointing to concerns such as global supply chain disruptions, aggressive fiscal policy, and a mismatch in housing supply and demand.

Bowman remarked, “The U.S. economy remains strong and core inflation remains uncomfortably above our 2% target.” Here, “core” inflation refers to the Personal Consumption Expenditures price index, excluding food and energy costs, which Bowman expects to be around 2.6% through August. The inflation data for August will be released on Friday.

She stated, “I preferred a smaller initial cut in the policy rate while the U.S. economy remains strong and inflation remains a concern,” expressing concern that further progress on inflation could stall. After maintaining the benchmark interest rate for 14 months between 5.25% and 5.5%, the Fed recently lowered it to the 4.75% to 5% range with an 11 to 1 vote.

Bowman’s dissent marked the first from a Fed Board member since 2005. She indicated a readiness to support more cuts if data indicates a weakening job market but argued that strong wage growth and more job openings than available workers reflect a robust overall labor market.

She expressed concerns that rapid rate cuts could unleash “a considerable amount of pent-up demand and cash on the sidelines,” possibly igniting inflation again. Moreover, she warned that monetary policy might not be as restrictive as some Fed officials believe.