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Bowman explained why she voted against the 50-basis point rate reduction.The FOMC rarely has dissenting opinions when it comes to rate cuts. Here’s why the Fed’s Michelle Bowman voted against a 50-basis point rate reduction.
Bowman was not against cutting rates; she simply favored a 25-basis point cut at the September 17 -18 FOMC, as opposed to the 50-basis point reduction that was approved by the other 11 FOMC members.In her remarks, Bowman explained that she preferred a smaller initial rate cut while the economy remains strong, but core inflation is still a concern. While inflation as measured by personal consumption expenditures dropped to 2.2% in August, the core inflation rate ticked up to 2.7%, from 2.
“In my mind, a more measured approach would have avoided the risk of unintentionally signaling concerns about underlying economic conditions,” she said. Finally, Bowman said her estimate of the neutral rate is much higher than it was before the pandemic. The neutral rate is achieved when the economy is at full employment and inflation is stable at the target level.
“Although it is important to recognize that there has been meaningful progress on lowering inflation, while core inflation remains around or above 2.5%, I see the risk that the committee’s larger policy action could be interpreted as a premature declaration of victory on our price-stability mandate,” she said.
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