As one of the most steadfast hawks within the Federal Reserve, Director Bauman slightly adjusted his monetary policy stance on Monday. She said that the interest rate hike may have ended, but she is not yet ready to start cutting rates.
During a private event in South Carolina, Bauman pointed out that the Federal Reserve has made progress in combating inflation and stated that short-term interest rates should continue to be maintained at current levels.
"Based on this progress, my view has shifted to considering the possibility that policy interest rates will continue to remain at current levels for a period of time, leading to a further decrease in inflation rates," she said.
"If over time inflation continues to fall close to our target of 2%, then starting to lower policy interest rates to prevent policies from becoming too restrictive will ultimately be appropriate."
"In my opinion, we haven't reached that point yet. The important risk of upward inflation still exists," she added.
She said, "There is a risk that the recent easing of financial conditions will accelerate economic growth again, hindering the process of reducing inflation and even causing inflation to accelerate again." She added that a strong labor market may lead to core service sector inflation remaining high.
Further interest rate hikes are not ruled out
As a Federal Reserve director, Bauman has permanent voting rights on monetary policy in the Federal Open Market Committee (FOMC). Prior to this speech, she had repeatedly stated that further interest rate hikes may be needed to address inflation issues.
At last month's meeting, the Federal Reserve kept the benchmark federal funds rate unchanged in the current target range of 5.25% -5.5%. In addition, the dot matrix chart reflecting the interest rate path suggests that there may be three interest rate cuts of 25 basis points in 2024.
However, the minutes of the Federal Reserve meeting released last week did not provide a possible timetable for interest rate cuts, and officials stated that there is "high uncertainty" about how the situation will evolve. Federal Reserve officials believe that interest rates may be at the peak of this round of monetary policy tightening cycle, but they do not rule out the possibility of further rate hikes.
Bauman stated that policymakers will continue to monitor developments rather than being limited to a specific policy path.
"When considering changes in future policy stance, I will remain cautious," she said, adding that if inflation data reverses, "I still support raising the federal funds rate at future meetings."
The Federal Reserve will hold another meeting from January 30th to 31st, and the market expects the central bank to maintain interest rates unchanged during this meeting, and then begin cutting interest rates in March. According to CME's FedWatch tool, market pricing shows that the Federal Reserve will cut interest rates a total of 150 basis points this year, or six times.