Fed Governor Bowman sees ‘similar’ rate hikes on the horizon after three-quarter-point moves

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Federal Reserve Bank governor Michelle Bowman makes her first public comments as a federal policymaker at an American Bankers Association conference in San Diego, Calif., Feb. 11, 2019.

Ann Saphir | Reuters

Federal Reserve Governor Michelle Bowman said on Saturday that she supports the central bank’s recent major rate hikes and thinks they will likely continue until inflation is subdued.

The Fed has in its last two policy meetings increased benchmark interest rates by 0.75 percentage point, the largest increase since 1994. Those measures were designed to bring inflation back to its highest level in more than 40 years.

In addition to the increases, the rate-setting Federal Open Market Committee indicated that “continued increases … will be appropriate,” a view Bowman endorses.

“My view is that increases of similar magnitude should be on the table until we see inflation fall in a consistent, meaningful and sustainable manner,” she added in prepared remarks in Colorado for the Kansas Bankers Association.

Bowman’s comments are the first from a board member since the FOMC approved the latest rate hike last week. In the past week, several regional presidents have said: they also expect rates to continue to rise aggressively until inflation falls from its current 9.1% yoy.

Next Friday’s jobs reportwhich showed an addition of 528,000 positions in July and a 5.2% year-over-year employee pay increase, both higher than expected, markets are pricing a 68% chance of a third consecutive 0.75 percentage point move at the next FOMC meeting in September, according to CME Group Data.

Bowman said she will watch upcoming inflation data accurately estimate how much it thinks the rates should be increased. However, she said the recent data cast doubt on hopes that inflation has peaked.

“I’ve seen little or no concrete evidence to support this expectation, and I’ll need to see unequivocal evidence of this decline before including an easing of inflationary pressures in my outlook,” she said.

In addition, Bowman said she sees “significant risk of high inflation into next year for necessities such as food, housing, fuel and vehicles.”

Her comments follow other data showing that U.S. economic growth, as measured by: GDP contracted for two consecutive quarterss, meet a common definition of recession. While she said she expects a rebound in growth in the second half and “moderate growth in 2023,” inflation remains the biggest threat.

“The greater threat to the strong labor market is excessive inflation, which, if sustained, could lead to further economic weakening, with the risk of a prolonged period of economic weakness coupled with high inflation, as we witnessed in the 1970s. In any case, we must keep our promise to lower inflation, and I will remain steadfastly focused on this task,” Bowman said.

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