More rate hikes likely appropriate if inflation pressures remain, Fed’s Bowman says

Federal Reserve Governor Michelle Bowman said Friday it “will likely be appropriate” for the U.S. central bank to raise interest rates further as the most recent consumer inflation and labor market data “have not provided consistent evidence that inflation is on a downward path.”

“Should inflation remain high and the labor market remain tight, additional monetary policy tightening will likely be appropriate to attain a sufficiently restrictive stance of monetary policy,” Bowman said in remarks for delivery at the European Central Bank in Frankfurt, Germany.

“I also expect that our policy rate will need to remain sufficiently restrictive for some time to bring inflation down and create conditions that will support a sustainably strong labor market,” she added.

Her remarks came after the Fed’s rate-setting Federal Open Market Committee raised its benchmark rate by a quarter point to a target range of 5.0%-5.25%, marking the 10th straight rate hike. At the same time, the Fed hinted it could be ready to pause for the time being and examine how the effects of monetary-policy tightening have impacted the real economy.

Of course, Bowman said she will consider incoming economic data before the Fed’s June 13-14 meeting to determine the appropriate stance of monetary policy.

“I will look for signs of consistent evidence that inflation is on a downward path when considering future rate increases and at what point we will have achieved a sufficiently restrictive stance for the policy rate,” she said.

The CPI report on Wednesday showed that headline prices rose 4.9% year-over-year in April. While that’s the first print below 5% in two years, it’s still well above the Fed’s 2% objective. The Fed’s preferred inflation gauge — personal consumption expenditures — is also running at over double the goal. On top of that, the Labor Department said last week the U.S. economy added 253K jobs, surpassing the 178K consensus, pulling the unemployment rate down to 3.4%.

Elsewhere, Bowman said the Fed needs another review of its oversight of failed regional lender Silicon Valley Bank (OTC:SIVBQ). On April 28, the central bank noted that its supervisors didn’t fully appreciate the extent of the vulnerabilities as SVB grew in size and complexity.

This time around Bowman wants the Fed to use a third party to “prepare a report to supplement the limited internal review to fully understand the failure of SVB,” she said. “This would be a logical next step in holding ourselves accountable and would help to eliminate the doubts that may naturally accompany any self-assessment prepared and reviewed by a single member of the Board of Governors.”

More on the Fed’s quest to squash inflation