United States | It’s still too early to cut rates, says Fed governor

(Washington) A governor of the American central bank (Fed) judged Friday that it was still too early to consider starting to lower the main key rates, warning of the risks that threaten the trajectory of prices.

“If the data continues to indicate that inflation is moving sustainably towards our 2% target, then it will become appropriate to gradually lower our policy rate to prevent monetary policy from becoming too restrictive. In my opinion, we are not there yet,” Michelle Bowman said in a speech.

The Fed maintained its main key rate in the range of 5.25-5.50% on Wednesday, following its monetary policy meeting.

After having raised them 11 times in the face of high inflation, it anticipates several reductions in 2024, but has held back on the start of this movement, deeming it necessary to be certain that inflation returns sustainably to an acceptable level.

“A certain number of risks remain”, likely to cause inflation to rise again, underlined Michelle Bowman. She mentioned the geopolitical situation, as well as the fact that lowering rates too soon could cause prices to rise again.

She also warned of the “risk that persistent tensions in the labor market lead to persistent and high inflation in services”.

In January, in fact, 353,000 jobs were created in the United States, twice as many as expected. The unemployment rate remained stable at 3.7%.

Michelle Bowman thus wanted to be “cautious”.

“While the current stance of monetary policy appears tight enough to bring inflation back to 2%, I remain open to raising rates at a future meeting if the data indicates that progress on inflation is at neutral or reversed,” she warned.

The PCE inflation index, a measure favored by the Fed and which it wants to reduce to 2%, remained at 2.6% over one year in December, but, excluding food and energy, fell to 2.9 %, its lowest level in almost three years.

It is even lower than the objective of 2% evolving over three and six months at an annualized rate, that is to say if the rate observed over these periods was projected over a full year.