US Federal Reserve Governor Michelle W Bowman has said an additional interest rate increase will likely be needed to get inflation on a path down to its 2 per cent target.
The US central bank in its July meeting raised its benchmark interest rate by 25 basis points, the highest in the past 22 years at 5.25-5.5 per cent.
“Given the strong economic data and still elevated inflation, I supported the FOMC’s decision in July to further increase the target range for the federal funds rate,” said Bowman in her remarks on Saturday at the 2023 CEO and Senior Management Summit and Annual Meeting, sponsored by the Kansas Bankers Association, Colorado Springs, Colorado.
“I also expect that additional rate increases will likely be needed to get inflation on a path down to the FOMC’s 2 per cent target.”
The latest consumer price index (CPI), which measures the prices of a basket of goods and services, increased by 3 per cent in June, down from a four-decade high of 9.1 per cent the same month last year.
The recent lower inflation reading was positive, Bowman noted, adding she will be looking for consistent evidence that inflation is on a meaningful path down toward its 2 per cent goal.
Barring the pause in June, the US central bank has hiked the interest rate for the eleventh consecutive time which was necessitated in the fight against soaring inflation.
Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.
“It’s important to reiterate that monetary policy is not on a preset course. My colleagues and I will make our decisions based on the incoming data and its implications for the economic outlook. We should remain willing to raise the federal funds rate at a future meeting if the incoming data indicate that progress on inflation has stalled,” the Fed governor further said.