The U.S. central bank will likely need to raise borrowing costs further in order to bring inflation back down to its 2% target over a reasonable period, Federal Reserve Governor Michelle Bowman said on Tuesday.
"My baseline economic outlook continues to expect that we will need to increase the federal funds rate further to keep policy sufficiently restrictive to bring inflation down to our 2% target in a timely way," Bowman said in prepared remarks to a banking association in Salt Lake City, Utah.
Earlier this month, the Fed kept its benchmark overnight lending rate unchanged in the 5.25%-5.50% range for the second consecutive policy meeting.
Since then, Fed Chair Jerome Powell has signaled that while the central bank stands prepared to raise interest rates again, it would only do so if progress on getting inflation back to the 2% target falters.
However, Bowman has repeatedly been among a small minority of policymakers who have said they don't think the Fed's job is yet done.
By the Fed's preferred measure, inflation fell to 3.4% in September, down from a peak of 7.1% last summer, and other Fed policymakers have pointed out that they still expect it will take more time for the full impact of the rise in borrowing costs over the past 20 months to filter through the economy.
Bowman, for her part, is less certain that will be enough, noting that inflation remains high and progress "uneven" and outlining in her remarks the "unusually high level of uncertainty" on the economic outlook.
It remains unclear whether a further easing of goods and labor supply will continue to lower inflation, given greater spending among consumers, higher energy prices, and possible new labor shortages in the next few years tied to the trend of bringing more manufacturing back from abroad, Bowman said.
Likewise, some signs of interest rate insensitivity among businesses could dull the effects of tighter monetary policy and financial conditions on economic activity and inflation, Bowman said, and overall longer-term economic conditions might mean the Fed's policy rate may need to be higher than pre-pandemic norms.
"In my view, given potential structural changes in the economy, such as higher demand for investment relative to saving, it is quite possible that the level of the federal funds rate consistent with low and stable inflation will be higher than before the pandemic," Bowman said.
Earlier on Tuesday, Fed Governor Christopher Waller said he is "increasingly confident" the central bank's current policy setting will prove enough to return inflation to the Fed's target.
