A senior Federal Reserve official warned on Friday that the central bank risks prematurely declaring victory over inflation by voting for a big interest rate cut.
The Federal Open Market Committee voted 11-1 on Wednesday to cut interest rates by 50 basis points rather than 25 basis points, with Fed Governor Michelle Bowman being the lone dissenter on the committee.
“The Committee's larger policy actions could be interpreted as a premature declaration of victory for its price stability mandate.” Bowman said in a statement. on friday.
“We believe that moving at a cautious pace toward a more neutral policy stance will ensure further progress in lowering inflation to our 2 percent objective.”
It was the first dissent by a Fed board member in 19 years and highlighted the unresolved question of how much support Fed Chairman Jerome Powell had among the FOMC's 12 voting members and its seven non-voting participants to begin a new rate-cutting cycle with a 50-basis-point cut.
At any meeting, only the committee's voting members (which include the seven Fed governors and five of the 12 central bank presidents) can express dissenting opinions.
Economic outlooks released by other Fed policymakers at the same time as Wednesday's policy statement suggested many were leaning toward a quarter-percentage-point cut, but the “dot plot” reflecting officials' interest rate outlook did not show how many non-voters have no option to signal opposition.
Fed President Christopher Waller said inflation data released in the weeks leading up to the September meeting led him to vote for a bigger rate cut.
Waller said he looked at the personal consumption expenditures price index, the Fed's preferred inflation measure, as well as the core consumer price index and the producer price index.
He said PCE has risen at an annualized rate of less than 1.8% over the past three months, below the Fed's 2% target.
“If the data starts to soften and continues to do so, I will be more aggressive in cutting rates to bring inflation closer to our target.” he told CNBC..
But Bowman said he's concerned strong demand could continue to drive prices up.
“I also see signals from continued strong growth in spending data, particularly consumer spending, reflecting a healthy labor market,” she said. “Inflation is above our 2 percent target, and core personal consumption expenditures prices are still rising faster than the 2.5 percent rate recorded 12 months ago.”
