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Fed’s Bowman says more rate increases needed

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By Howard Schneider

WASHINGTON (Reuters) – U.S. Federal Reserve Gov. Michelle Bowman said Thursday that “additional policy rate increases” will be needed to control inflation she feels has essentially flatlined at a high level since late last year.

The U.S. central bank “has made progress in lowering inflation, but despite the significant tightening of monetary policy, we continue to see unacceptably high levels of inflation,” Bowman said in remarks prepared for delivery at a Fed community event in Cleveland. “I believe that additional policy rate increases will be necessary to bring inflation down to our target over time.”

Bowman said she supported the decision to hold rates steady at the Fed’s meeting last week, a step characterized by Fed chair Jerome Powell this week as a prudent step given the uncertainty over where the economy and inflation are heading, and whether stress in the financial sector might lead to a sharper than expected economic slowdown.

But her use of the plural “rate increases” also indicated she is among the majority of Fed officials who see the central bank approving at least two more quarter-point rate hikes in the four Fed meetings left during 2023. Three officials feel rates will need to move even higher, with one projecting rates will rise another full percentage point, from the current range between 5% and 5.25% to more than 6%.

Bowman did not detail where she landed on that spectrum.

But differences are starting to emerge among U.S. central bankers about what may happen next. Some like Bowman argue for more rate increases – investors currently think hikes will resume at the July meeting – while others say they need to study more data before deciding, and one call so far, by Atlanta Fed president Raphael Bostic, for rates not to be increased any further.

“Although tighter monetary policy has had some effect on economic activity and inflation to date, we have seen core inflation essentially plateau since the fall of 2022,” Bowman said, with further increases needed to “meaningfully and durably bring inflation down.”

The Fed’s preferred measure of inflation is currently more than double its 2% target.

Powell appears before the Senate Banking Committee on Wednesday morning for a second day of testimony on the economy.

(Reporting by Howard Schneider; Editing by Chizu Nomiyama)

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