Federal Reserve Governor Michelle Bowman indicated Friday that further interest rate increases may be in the cards. The comments may be a leading indicator that concerns about inflation have not yet subsided.
The Fed leader said that recent inflation figures and unemployment numbers “have not provided consistent evidence that inflation is on a downward path, and I will continue to closely monitor the incoming data as I consider the appropriate stance of monetary policy going into our June meeting.”
She added that if inflation remains high and employment rises, “additional monetary policy tightening will likely be appropriate to attain a sufficiently restrictive stance of monetary policy to lower inflation over time.”
The US Federal Reserve will probably need to raise interest rates further if inflation stays high, Fed Governor Michelle Bowman said, adding that key data so far this month has not convinced her that price pressures are receding https://t.co/4ACY7sFJGZ pic.twitter.com/m63megQ2wB
— Reuters (@Reuters) May 12, 2023
The statement makes clear that the Federal Reserve does not fully believe that it has slain inflation.
There could be increased pressure to raise rates due to last week’s jobs report. The higher-than-expected job increase may have the opposite effect on the market than ordinarily expected.
The increased hiring is a key indicator that high inflation will continue into the foreseeable future. Furthermore, inflation clocked in at almost 5% in recent Consumer Price Index (CPI) figures, which may precipitate another Fed hike.
The risk of higher inflation and low economic growth puts the Federal Reserve in a difficult situation. Higher rates may lead to more bank failures while no action could keep persistent inflation occurring for years.
The move could rattle already shaky markets. The fall of three major American banks, starting with Silicon Valley Bank, has already tested faith in the country’s financial institutions.
Shares of a number of regional banks fell this week following concern that the issues that led to recent bank runs may not have subsided. The recent acquisition of First Republic Bank by JP Morgan Chase underscores the possibility that the market has not yet reached equilibrium.
Furthermore, the potential hikes would contradict some estimates that the central bank was done with rate increases.
While the exact action by the Fed is not yet known, signaling that rate hikes could be coming soon may be the opposite news that many market watchers were anticipating.
