Federal Reserve Governor Michelle Bowman says she supports ongoing 75 basis point interest rate hikes “until inflation is on a consistent path to significantly decline,” citing “a significant risk of high inflation into next year for necessities including food, housing, fuel, and vehicles.” The Fed governor also noted that crypto assets “could benefit from more regulatory clarity.”
Fed’s Bowman on Rate Hikes, Inflation, Crypto Regulation
Federal Reserve Governor Michelle W. Bowman discussed the U.S. economy and the Fed’s efforts to fight inflation in a speech Saturday at the 2022 CEO & Senior Management Summit sponsored by the Kansas Bankers Association.
Referencing the Federal Open Market Committee (FOMC)’s decision to raise the federal funds rate by 75 basis points during its July meeting, she expressed her support for the increase and the FOMC’s view that “ongoing increases would be appropriate at coming meetings.”
Emphasizing her support for “continued increases until inflation is on a consistent path to significantly decline,” the Fed governor opined:
My opinion is that inflation should continue to decline in a steady, meaningful, and long-lasting manner.
Bowman then explained why she supports 75 basis point interest rate rises.
Inflation continued to rise in June as the consumer price index measured it at 9.1%. “This is yet another concerningly high reading, and it set another 40-year record high despite the expectation of many forecasters that inflation had peaked earlier in the year,” she described. Noting the lack of “concrete indications that support this expectation,” she said:
To be able to include an easement in inflation pressures in my outlook, I must see clear evidence.
She then outlined some underlying causes of excessive inflation, such as “supply chain issues, including those related to China’s Covid containment policies, constrained housing supply, the ongoing conflict in Ukraine, fiscal stimulus, and limitations on domestic energy production.”
Citing rising prices of food, housing, and energy negatively impacting Americans, she stressed: “It is absolutely critical that we continue to use our monetary policy tools until we are successful in returning inflation to our 2% goal.” Bowman reiterated that the Federal Reserve has a duty to bring inflation down to 2% as mandated by Congress.
Fed Governor also noted that business are suffering from high inflation due to rising input costs and volatile prices. The Fed governor cautioned by noting that rents are unlikely to fall anytime soon. This is in addition to high gas prices as well as the ongoing inflation risk from motor vehicles prices.
There is significant danger of inflation in the coming year, especially for essentials such as food, fuel, or vehicles.
Bowman believes that Russia-Ukraine conflicts will persist. Bowman added that shipping disruptions in agriculture products as well as restrictions on Russia’s energy supplies are likely to remain significant problems.
In her speech, Governor Bowman spoke out about cryptocurrency regulation.
Digital assets include stablecoins as well as crypto assets. Another area where more regulation clarity could be beneficial is the digital asset sector.
“Some banks are considering expanding into a range of crypto activities, including custody, lending backed by crypto collateral, and facilitating the purchase and sale of these assets for their customers,” the Federal Reserve governor noted. “In the absence of clear guidance, banks should consult with their primary regulator and exercise caution when engaging with customers in these types of activities.”
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