Fed's Bowman flags persistent inflation, expects price pressure to ease next year

Federal Reserve Vice Chair for Supervision Michelle Bowman on Tuesday highlighted persistent inflation as a key concern for US monetary policy, while stopping short of advocating further interest-rate increases. She said she expects price pressures to moderate next year as the impact of recent economic and geopolitical shocks fades.

According to Reuters, Bowman said in remarks prepared for delivery to the Council on Foreign Relations in Washington that inflation pressures were showing signs of persistence, while labour market conditions appeared to be strengthening. She indicated that further progress was needed to bring inflation back towards the Federal Reserve's 2% target.

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Bowman estimated that the core personal consumption expenditures (PCE) price index, the Fed's preferred inflation gauge, likely increased 3.3% in October, driven partly by higher energy prices and demand associated with artificial intelligence (AI) investment.

However, she said the lack of progress in bringing inflation down was not being driven by the labour market, which has improved but does not appear overheated.

Bowman expects core PCE inflation to move closer to the central bank's 2% target next year as inflationary pressures from the AI investment boom and the conflict in the Middle East ease. She also indicated that there were no significant inflationary pressures emerging from the labour market.

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Her remarks come as Federal Reserve policymakers increasingly focus on persistent inflation risks and the possibility that price pressures could remain elevated for longer than anticipated.

Bowman also warned that falling equity prices, rising bond yields and a stronger US dollar had tightened financial conditions, potentially posing risks to an economy that has strengthened this year, according to Reuters.

She cautioned that the potential benefits of additional monetary tightening needed to be weighed against the costs for interest-rate-sensitive sectors of the economy.

Bowman said greater clarity over the sustainability of AI-related demand and the trajectory of geopolitical risks would be important in determining the Federal Reserve's monetary policy stance in the coming months.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times.)