Fed’s Bowman still sees ‘upside risks’ to US inflation

Federal Reserve governor Michelle Bowman is worried about reacceleration in cost of living, saying that she ‘still see some upside risks to inflation’ in her prepared remarks to a Kansas Bankers Associations event Saturday.

While her baseline was still that ‘inflation will decline further with the current stance of monetary policy’ and it will soon be appropriate to cut rate, Bowman stated several reasons that inflation may jump up again.

Disinflation tailwind waning

Contributions from the supply-side, including easing of supply chain constraints, increased availability of labors resulted from increased immigration and elevated labor force participation, are likely close to be exhausted, Bowman noted, making it likely that the the disinflation will be much slower than last year.

Recent surge in costs for container shipping originating in Asia, partly a result of geopolitical developments, is one of the upside risk factors Bowman cited. She worried further geopolitical disruptions could push food, energy, and commodity prices further up.

She also mentioned that increased immigration, which have so far helped bring down wage pressure, could on the other hand lead to persistently high housing services inflation. Given that new immigrants inflow may concentrate in certain cities, with low inventory of affordable housing available, rent could potentially drive rent higher.

Weak July jobs report likely result of temporary factors

Bowman also casted doubt on the idea that the much-weaker-than-expected July jobs report is a signal that the US economy was headed into a recession, saying it’s “likely that some temporary factors contributed to the soft July employment report.”

‘[W]ith some upside risks to inflation, I still see the need to pay close attention to the price-stability side of our mandate while watching for risks of a material weakening in the labor market,” Bowman concluded.

Bowman’s speech: Update on the Economic Outlook, and Perspective on Bank Culture, M&A, and Liquidity