Michelle Bowman, Vice Chair for Oversight, Federal Reserve Board of Governors, during the Federal Reserve Board Community Banking Conference, Thursday, October 9, 2025, in Washington, DC, USA.
Eric Lee | Bloomberg | Getty Images
Federal Reserve President Michelle Bowman on Friday warned against raising interest rates to address the current spike in prices.
Inflation is well above the central bank’s 2% target, and markets expect the Fed to hold interest rates unchanged for the rest of the year, before potentially starting to raise them again in early 2027. Current pricing suggests there is virtually no chance of rate cuts until at least 2027.
But Bowman said adjusting policy to offset the energy-driven inflation surge has proven ineffective.
“Reacting to a temporary increase in energy price inflation would add unwarranted policy restraints that would unnecessarily weigh on economic activity and labor market conditions,” he told a conference in Reykjavik, Iceland.
Bowman added that research shows that “policy should not be overly aggressive” when responding to temporary energy shocks.
The remarks came a day after the Commerce Department reported that the Federal Reserve’s benchmark inflation measure, the Personal Consumption Expenditure Price Index, rose 3.8% in April, or 3.3% excluding food and energy prices.
But measurements that remove the extremes of the components in the gauge show that inflation is moving closer to target. The 12-month interest rate is 2.3%, according to the Dallas Fed’s “trimmed average” inflation index.
Bowman echoed comments from his fellow central bankers that the policy response would depend on the duration of the conflict with Iran. If the fighting is prolonged and inflationary pressures increase, “it becomes more likely that we will consider a change to a balance of risks approach.”
Bowman added that he supported maintaining the language in the central bank’s statement after its most recent meeting, which hinted at the possibility of another rate cut. Three members of the Federal Open Market Committee voted against the statement because it contained so-called forward guidance language.
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