Janice R. Andrews
A senior Federal Reserve official warned that inflation remains a greater risk to the U.S. economy than any weakness in the labor market, despite recent progress. Speaking at a virtual event on Friday, Fed Governor Michelle Bowman emphasized that, while the economy is strong, underlying inflation is still a concern.
The Federal Reserve has a dual mandate from Congress to manage both inflation and unemployment. Recently, the Fed began reducing interest rates to support the labor market, with two cuts since September bringing the benchmark rate down to a range of 4.50–4.75%.
However, Bowman pointed out that with the labor market near full employment, the bigger challenge lies in inflation. “I continue to see greater risks to the price stability side of our mandate,” she said, highlighting the persistence of core inflation.
The Fed’s preferred inflation gauge ticked up to 2.3% in October, slightly above its 2% target, while core inflation, which excludes volatile food and energy prices, remained high at 2.8%. Bowman noted that inflationary pressures continue despite strong economic performance.
Bowman also identified several factors that could exacerbate inflation, including supply chain disruptions from labor strikes, geopolitical tensions, increased trade conflicts, and expansionary government spending.
Financial markets are pricing in more than an 85% probability that the Fed will cut rates again at its upcoming meeting on December 17–18, according to CME Group data. However, there is still some disagreement within the Fed, with some policymakers favoring a cautious approach while others suggest further easing.
Bowman added that upcoming inflation data would play a key role in shaping her decision at the next meeting. As the Fed balances its priorities of maintaining price stability and supporting employment, the next few weeks could be critical in determining the direction of U.S. monetary policy.
