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Fed Governor Bowman expects ‘similar sized’ rate hikes after three-quarter point moves

Federal Reserve Bank Governor Michelle Bowman delivers her first public address as a federal policymaker at an American Bankers Association conference in San Diego, California, February 11, 2019.

Anne Sapphire | Reuters

Federal Reserve Governor Michelle Bowman said on Saturday she supported the central bank’s recent large interest rate hikes and believed they would continue until inflation was brought under control.

The Fed, in its last two policy meetings, increase in benchmark borrowing rates 0.75 percentage point, the largest increase since 1994. These measures were aimed at controlling inflation, which was at its highest level in more than 40 years.

In addition to the hikes, the Federal Open Market Committee responsible for setting rates has indicated that “continued increases … will be appropriate,” a view Bowman said she agrees with.

“My view is that increases of a similar size should be on the table until we see inflation come down consistently, significantly and sustainably,” she added in prepared remarks in Colorado for the Kansas Bankers Association.

Bowman’s comments are the first from a member of the Board of Governors since the FOMC last week approved the latest rate hike. Over the past week, several regional presidents have said they also expect rates to continue to rise aggressively until inflation falls from its current annual rate of 9.1%.

Next Friday jobs reportwhich showed an addition of 528,000 jobs in July and a 5.2% year-over-year increase in worker compensation, both higher than expected, markets had been pricing in a 68% probability of a third consecutive move of 0.75 percentage points at the next FOMC meeting in September, according to CME Group Data.

Bowman said she would watch upcoming inflation data closely to gauge precisely how much she thinks rates should be increased. However, she said recent data cast doubt on hopes that inflation has peaked.

“I have seen little, if any, concrete evidence to support this expectation, and I will need to see unambiguous evidence of this decline before factoring an easing of inflationary pressures into my outlook,” she said.

Additionally, Bowman said she sees “significant risk of high inflation next year for basic necessities, including food, shelter, fuel and vehicles.”

His comments follow other data showing that U.S. economic growth, as measured by GDP has contracted for two consecutive quarterss, meeting a common definition of recession. While she said she expects growth to pick up in the second half of the year and “moderate growth in 2023”, inflation remains the biggest threat.

“The greatest threat to the strength of the labor market is excessive inflation, which if continued could lead to a further economic slowdown, risking a prolonged period of economic weakness coupled with high inflation, as we have known in the 1970s. In any case, we must fulfill our commitment to reduce inflation, and I will remain resolutely focused on this task,” Bowman said.

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