Federal Reserve Governor speaks out: Bullard predicts another 50 basis point rate cut, Bowman maintains cautious stance.

Federal Reserve Governor Michelle Bowman said on Friday that the Federal Reserve has not yet reached the moment to declare victory in the fight against inflation. Bowman was the only member to vote against the decision to cut interest rates by 50 basis points at Wednesday's Federal Reserve meeting, as she was in favor of a 25 basis point cut. The other 11 members of the Federal Open Market Committee (FOMC) supported the decision for a significant rate cut. In her statement, Bowman expressed that she agrees it is time to ease monetary policy but prefers to do so gradually. She is concerned that a large rate cut may be misconstrued as the Federal Reserve prematurely declaring victory in its price stability mission. The Federal Reserve has two main responsibilities: maximizing employment and maintaining price stability, with the goal being to keep inflation around 2% annually. Bowman believes that while inflation is expected to pick up in early 2024 before moderating, current price increases are still too high. According to the latest data, the core personal consumption expenditures (PCE) price index rose by 2.6% year-on-year in July. In contrast, Federal Reserve Governor Christopher Waller has a different view. Waller noted that recent inflation data has been moderate, and if this trend continues, inflation levels may be lower than the Federal Reserve's annual target. He stated in a media interview, "The economy is strong now, inflation is coming down, and we want to keep it that way." Waller also mentioned that if future employment data shows weakness and inflation continues to cool, the Federal Reserve may take further measures to cut rates by 50 basis points. However, if inflation rebounds, the Federal Reserve may pause further rate cuts. Waller supports a larger rate cut due to his belief that inflation is dropping faster than expected. He mentioned that the annual increase in the Consumer Price Index (CPI) in August was 2.5%, lower than expected, but core prices have risen slightly due to a rebound in housing costs. Waller estimated that the core PCE price index would rise by 0.14% month-on-month in August based on CPI and Producer Price Index (PPI) data. If his forecast is accurate, the annualized core PCE inflation rate over the past four months will be below 1.8%, significantly below the Federal Reserve's 2% target. Despite disagreements in the market and among officials about the extent of rate cuts, Waller emphasized that the Federal Reserve's current policy setting is still well above the "neutral rate" level, which neither stimulates nor suppresses economic activity. He believes that the Federal Reserve has significant room to further cut rates in the next six to twelve months. According to the economic forecasts released by the Federal Reserve in September, there may be a 1 percentage point rate cut in 2024, followed by another 1 percentage point cut in 2025, bringing the target rate to between 3.25% and 3.5%. In conclusion, despite internal disagreements within the Federal Reserve, officials are working towards achieving their inflation target and maintaining economic stability, with future policy adjustments depending on the performance of economic data.