Federal Reserve In Disarray: Conflicting Signals Spell More Economic Uncertainty

Michelle Bowman and Christopher Waller, both voting members of the 12-member Federal Open Market Committee (FOMC) that determines changes in the Fed’s monetary policy, delivered remarks Tuesday with Bowman saying she believes more rate hikes are needed and Waller saying it may not be necessary. 

After inflation hit a 40-year high of 9.1% in June 2022, the Fed embarked on a campaign of interest rate hikes that have pushed rates to their highest level in two decades and reduced inflation to 3.2% as of October — well above the Fed’s 2% target.

Bowman said in remarks at the Utah Banker and Business Leader Breakfast that her "baseline economic outlook continues to expect that we will need to increase the federal funds rate further to keep policy sufficiently restrictive to bring inflation down to our 2 percent target in a timely way." 

She noted that she holds that view despite supporting the FOMC’s decision at its last meeting to hold the benchmark federal funds rate steady while the board continued to assess economic data, and emphasized that "monetary policy is not on a preset course" as the central bank will continue to review incoming data.

Christopher Waller, who last month delivered a speech called "Something’s Got to Give" due to the Fed’s rate hikes not cooling down the economy or the labor market even as inflation has slowed, titled his remarks Tuesday at the American Enterprise Institute "Something Appears to Be Giving."

"I am encouraged by what we have learned in the past few weeks — something appears to be giving, and it’s the pace of the economy. Data for October indicated an easing in economic activity, and forecasts for the fourth quarter show the kind of moderation that is more in keeping with progress on lowering inflation," Waller said.

"While I am encouraged by the early signs of moderating economic activity by the early signs of moderating economic activity in the fourth quarter based on the data in hand, inflation is still too high, and it is too early to say whether the slowing we are seeing will be sustained," he explained. "But I am increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2 percent." 

"That said, there is still significant uncertainty about the pace of future activity, and so I cannot say for sure whether the FOMC has done enough to achieve price stability," Waller added.

The FOMC is scheduled to meet again next month on December 12-13, which will be the central bank’s final meeting of the year.