Federal Reserve hawkish governor Bowman stated that inflation progress seems to have stalled, and the Vice Chairman for Financial Supervision said there will be no changes due to Trump's departure

On Wednesday, several voting officials from the Federal Reserve spoke out. Board member Michelle Bowman, who has a hawkish stance on monetary policy, stated that progress on inflation seems to have stalled and leans towards cautiously advancing interest rate cuts. Analysts suggest that if the U.S. labor market remains strong while inflation progresses slowly, Bowman may not agree to continue cutting rates in December. Board member Philip Jefferson spoke in a conventional manner, indicating that over time, it may be appropriate for the Federal Reserve to lower interest rates to a more neutral stance. Federal Reserve Board member and Vice Chair for Supervision Michael Barr stated that he would not resign due to Trump and plans to continue serving as Vice Chair until the end of his term, which will conclude in July 2026. The Federal Reserve will hold its next FOMC meeting on December 17-18. Federal Reserve officials will release their latest forecasts for the economy and interest rate path after the December meeting. Given the recently released strong U.S. inflation data and a series of statements from Federal Reserve officials suggesting a cautious approach, Federal Reserve Chair Jerome Powell stated last week that the U.S. economy has not signaled a need for urgent interest rate cuts. While investors still expect a rate cut in December, they have lowered their expectations for the pace of future cuts by the Federal Reserve. Bowman: Progress on Inflation Seems to Have Stalled Hawkish Federal Reserve official Michelle Bowman stated, "Since the beginning of 2023, we have made significant progress in reducing inflation, but in recent months, progress seems to have stalled, and I lean towards cautiously advancing interest rate cuts." She added, "I would prefer to cautiously lower the policy rate to better assess how far we are from the finish line, while recognizing that we have not yet achieved our inflation target and closely monitoring developments in the labor market." Bowman believes there is a risk that the policy rate could be below neutral levels before achieving the price stability target. Her expectations for the neutral rate are higher than pre-COVID levels. Bowman pointed out that the Federal Reserve's preferred inflation measure—the 12-month core personal consumption expenditures price index—has been hovering around 2.7% since May. Preliminary data suggests that progress in October will also be limited. Bowman voted against the Federal Reserve's decision to cut rates by 50 basis points at the September FOMC meeting, marking the first time in nearly 20 years that a Federal Reserve board member opposed such a cut. Bowman prefers smaller rate cuts. This month, she voted alongside her Federal Reserve colleagues to support a 25 basis point cut. Media analysis suggests that Bowman's remarks indicate that if the U.S. labor market remains strong while inflation progresses slowly, she may not agree to continue cutting rates in December. Bowman also mentioned the need for patience and caution regarding immigration policy. In her remarks on the same day, Bowman criticized the regulatory response to the bank failures that occurred in early 2023 (including the collapse of Silicon Valley Bank): "A crisis is not a blank check for regulation. Promoting safety, soundness, and financial stability should not evolve into credit regulation allocation—choosing winners and losers—or promoting ideological positions through more open processes such as bank regulation and scrutiny." Jefferson: It May Be Appropriate to Lower Rates to a More Neutral Stance On the same day, another Federal Reserve official, Governor Cook, stated that over time, it may be appropriate for the Federal Reserve to lower interest rates to a more neutral stance, given the inflation process and a robust labor market. Cook described the risks facing the Federal Reserve's employment and inflation targets as "roughly balanced." A neutral policy stance refers to one that neither stimulates nor restricts economic activity. Cook believes the direction of interest rates is downward, but the magnitude and timing of rate cuts will depend on upcoming data and economic outlook. Cook noted that significant progress has been made in cooling inflation, but the core inflation rate, excluding volatile categories such as food and energy, remains high, indicating that there is still a long way to go to reliably achieve the 2% inflation target. "Although most price indicators suggest that inflation progress continues, I expect the road ahead to be bumpy." Cook anticipates that both overall inflation and core inflation will drop to 2.2% next year, and the slowdown in wage growth further enhances her confidence in continued cooling of inflation. Regarding the labor market, Cook believes it is solid. In 2024, the labor market has cooled, including a reduction in job vacancies and an increase in the unemployment rate. Nevertheless, the unemployment rate and layoff rate remain generally low. The labor market is in good shape, with supply and demand roughly balanced, and thus is no longer a source of inflationary pressure in the economy. Cook stated that the downside risks to employment have recently diminished. However, she warned that national employment growth in the U.S. may not be sufficient to keep the unemployment rate at its current low level. Cook also outlined potential scenarios for the Federal Reserve's future policy path: If the labor market and inflation continue to develop as she predicts, then over time, it may be appropriate to lower interest rates until approaching the neutral rate. However, if inflation progress slows and the labor market remains robust, I can see a scenario where we pause on the downward path. Alternatively, if the labor market weakens significantly, then a faster easing of policy may be appropriate. Barr: Will not resign due to Trump Federal Reserve Governor and Vice Chair for Supervision Michael Barr also spoke out. He stated that he does not plan to make significant policy changes before President Trump, if elected in 2025, takes office. When asked if he might be forced to resign after Trump takes office, Barr stated, he will not resign due to Trump and plans to continue serving as Vice Chair until his term ends: Congresswoman Maxine Waters previously asked Barr if he would comply and leave if Trump were to dismiss him. Barr told the congresswoman, "As Chair Powell has said, our terms are fixed, and I intend to complete my fixed term." Barr's term as Vice Chair for Supervision will end in July 2026, and his term as a Federal Reserve Governor will end in January 2032