Federal Reserve Governor Michelle Bowman said she supports interest rate increases of 75 basis points “until inflation has on a consistent path toward significantly declining.” She also noted that crypto assets could benefit from greater regulatory clarity.
Michelle W. Bowman, Federal Reserve Governor, spoke Saturday at the 2022 CEO & Senior Management Summit sponsored and hosted by the Kansas Bankers Association.
She spoke out in support of the Federal Open Market Committee’s (FOMC), decision to increase the federal funds rate by 75 basis point during its July meeting. The FOMC also stated that she believed “ongoing increases” would be appropriate at future meetings.
The Fed Governor emphasized her support for “continued rises until inflation is on an consistent path to significantly decrease,” and she said:
I believe that similar-sized increases should continue to be considered until inflation declines in a consistent, meaningful and lasting manner.
Bowman explained then why she supported 75 bps rate increases.
According to the consumer price index, inflation rose to 9.1% in June. She described, “This is another worryingly high reading. It set another 40-year high despite the expectation by many forecasters that inflation would peak earlier in the year.” She noted the absence of “concrete indicators that support this expectation”.
Before I can incorporate an improvement in inflation pressures into the outlook, I need to have clear evidence.
Then, she outlined the underlying causes of excessive inflation such as “supply chains issues”, including those related China’s Covid containment policy, constrained housing supply and ongoing conflict in Ukraine. She also cited fiscal stimulus and limits on domestic energy production.
She cited rising food and housing prices as a reason for Americans’ negative impact. Bowman stressed that the Federal Reserve is required to bring down inflation to 2%, as mandated by Congress.
Inflation is also a problem for businesses, as input prices rise and become volatile. She cautioned that while she doesn’t expect rents to fall anytime soon, along with high gas prices, and the continued inflation risk from motor vehicle price increases, she also noted that she is not expecting rents to drop in the near future.
Inflation is a major concern for the next year’s necessities, including food, fuel and vehicles.
Bowman expects that the Russia-Ukraine war will continue. He also believes that shipping disruptions to agricultural products and restrictions on Russia’s energy supply will continue to be a problem.
Governor Bowman also spoke out in support of cryptocurrency regulation, saying:
Digital assets, which include stablecoins as well as crypto assets, are another area that could benefit from greater regulatory clarity.
Federal Reserve Governor noted that some banks may be considering expanding into crypto activities. This includes custody, lending backed with crypto collateral and facilitation of the sale and purchase of these assets for customers. Banks should consult their primary regulator for guidance and be cautious when engaging in these kinds of activities with customers.