Federal Reserve Vice Chair of Supervision Michelle Bowman reiterated that inflation is the central focus for policymakers, saying there remains work to do to bring inflation down toward the Fed's 2% objective. In remarks prepared for delivery to the Council on Foreign Relations in Washington, DC, Bowman described a mix of persistent price pressures and a labor market that is firming.
"Today, I am seeing signs that inflation pressures are persisting, while labor market conditions appear to be firming," Bowman said. She added explicitly: "This indicates that there is still work to do to bring inflation closer to 2%."
Bowman provided a snapshot of recent readings on consumer prices, saying the core personal consumption expenditures price index likely rose 3.3% in October. She attributed that increase to higher energy prices and demand tied to the buildout of artificial intelligence.
At the same time, Bowman said the absence of progress in reducing inflation has not been driven by an overheated labor market. She characterized the labor market as improved yet not overheated, and noted that she does not see emerging inflationary pressures in labor markets at this time.
Looking ahead, Bowman said she expects core PCE inflation to move closer to 2% next year as the effects of recent shocks ebb. Specifically, she pointed to the eventual waning or unwinding of pressures from both the AI buildout and the conflict in the Middle East as factors in her forecast.
Bowman also flagged financial-market developments that have already tightened conditions. She cautioned that falling stock prices, rising bond yields and a stronger dollar have contributed to tighter financial conditions and could pose risks to the economy, which she noted has strengthened this year.
On the question of additional policy action, Bowman urged caution. "The benefit of additional policy tightening has to be carefully weighed against its costs for interest-rate-sensitive sectors," she said, underscoring that further moves would need to be balanced against the economic effects on sectors sensitive to borrowing costs.
She concluded by pointing to the role of time and incoming information in shaping policy decisions. "Time will help us learn more about the durability of momentum in AI-related demand and the evolution of geopolitical risks, both of which could be critical in the months ahead for setting our policy stance," Bowman said.
Context and implications
Bowman's remarks signal a continued focus on inflation even as she stops short of calling directly for near-term rate hikes in these prepared comments. Her outlook assumes that special factors that have pushed core inflation above the Fed's target will moderate next year, bringing core PCE closer to 2% provided that labor markets stay free of inflationary pressures. At the same time, she emphasized that tightening financial conditions could offset some of that easing and introduce risks.
Who is affected
- Interest-rate-sensitive sectors - highlighted by Bowman as potentially bearing costs if policy tightens further.
- Financial markets - moves in equities, bonds and currencies are already tightening financial conditions, according to Bowman.
- Areas tied to AI-related demand and energy markets - cited as contributors to recent core inflation dynamics.