The United States Federal Reserve may need to increase interest rates once more if inflation fails to decline consistently in the coming weeks, according to Michelle Bowman, a governor of the Fed. Speaking at a conference in Frankfurt, Germany, Bowman stated that if inflation remains high and the labour market continues to remain tight, additional monetary policy tightening will likely be necessary. The central bank has already raised interest rates ten times as it seeks to tackle inflation, which remains well above its long-term target of two percent.
Fed Remains Data-Dependent in Decision-Making
Bowman and other policymakers at the Fed have adopted a data-dependent approach to rate changes. The central bank will likely monitor incoming data closely as it considers the appropriate stance of monetary policy going into its June meeting. Although the labour market has remained buoyant despite a recent slowdown in economic growth, Bowman stated that the most recent consumer price index and employment reports have not provided consistent evidence that inflation is on a downward path.
Market Watchers Anticipate the Fed to Hold Steady
While another top Fed official, New York Fed President John Williams, has left the door open to a further interest rate hike to combat inflation, futures traders predict that policymakers will maintain lending rates at the next Fed meeting on June 14. According to data from CME Group, traders see a close-to-90-percent chance of the Fed holding steady.
Outlook for Inflation and Monetary Policy Remains Uncertain
The outlook for inflation and monetary policy in the United States remains uncertain, with the Fed keeping a watchful eye on the labour market and inflation data. Market watchers and policymakers alike will continue to pay close attention to economic indicators in the coming weeks to determine the appropriate stance of monetary policy.
The Fed’s recent string of interest rate hikes, with its most recent hike lifting its benchmark lending rate to between 5.0 percent and 5.25 percent, has brought the rate to its highest level in around 16 years. Policymakers are prepared to take additional action if necessary, although the ultimate decision will depend on incoming data in the coming weeks.
