US Fed official sees inflation cooling but possible risks
WASHINGTON: US inflation is likely to cool further while interest rates remain at current levels, a senior central bank official said Friday, though adding that there are potential risks to this expectation.
WASHINGTON: US Federal Reserve Governor Michelle Bowman attends a "Fed Listens" event at the Federal Reserve headquarters in Washington, DC. -- AFP.
“My baseline outlook continues to be that inflation will decline further with the policy rate held steady, but I still see a number of upside inflation risks,” said Federal Reserve Governor Michelle Bowman in prepared remarks.
These factors include spillovers from regional conflicts which could snarl global supply chains and cause prices to rise.
Added fiscal stimulus could also fuel demand, she noted. The Fed has held interest rates at a 23-year high in recent months, citing a lack of further progress in lowering inflation to its two percent target. “In light of these risks, and the general uncertainty regarding the economic outlook, I will continue to watch the data closely as I assess the appropriate path of monetary policy,” Bowman said in remarks to a convention in Florida.
For now, she said, the central bank’s monetary policy stance “appears to be restrictive.”
But she added that she is “willing to raise the federal funds rate at a future meeting should the incoming data indicate that progress on inflation has stalled or reversed.” On Wednesday, Fed Chair Jerome Powell said the bank is prepared to hold rates steady for as long as appropriate.
He noted that it is likely to take longer than previously expected for policymakers to gain more confidence that inflation is moving sustainably towards their target.
Meanwhile, activity in the US services sector contracted last month, a first since December 2022, on the back of a cooldown in business and slower growth in orders, according to survey data released Friday. The services index of the Institute for Supply Management (ISM) slipped unexpectedly to 49.4 percent in April, dipping below the 50-point mark separating growth from contraction.
Analysts generally expected the sector to continue growing. The reading was a shift from March’s reading of 51.4 percent and ended a stretch of 15 straight months of growth.
“The decline in the composite index in April is a result of lower business activity, slower new orders growth, faster supplier deliveries and the continued contraction in employment,” said ISM survey chair Anthony Nieves. The business activity index slid 6.5 percentage points to 50.9 percent in April while the new orders index dropped 2.2 percentage points to 52.2 percent. Meanwhile, the employment index contracted for the fourth time in five months, said ISM.
Survey respondents indicated that business is generally slowing overall, said Nieves. “The majority of respondents indicate that inflation and geopolitical issues remain concerns,” he added. With the US service sector showing surprising resilience despite high interest rates, “the data bear watching for a more persistent weakening in activity going forward,” said Rubeela Farooqi, chief US economist at High Frequency Economics. – AFP.
