Washington (AFP) – The sole holdout in the US Federal Reserve’s 11-to-1 vote cementing a larger interest rate cut said Friday that the move “could be interpreted as a premature declaration of victory.”
Earlier this week, Fed governor Michelle Bowman became the first voting member of the central bank’s rate-setting committee for more than two years to dissent from a rate decision, signaling at the time that she would have preferred a more modest cut of a quarter of a percentage-point. Bowman said in a statement Friday that, given the progress made on inflation since last summer, she felt it was “appropriate to recalibrate the level of the federal funds rate and begin the process of moving toward a more neutral policy stance.”
“In my view, however, a smaller first move in this process would have been a preferable action,” she added. A smaller cut would have been a more conventional step, while the larger move does more to stimulate demand, but also carries a greater risk of reigniting inflation.
“I see the risk that the Committee’s larger policy action could be interpreted as a premature declaration of victory on our price stability mandate,” Bowman said. “I believe that moving at a measured pace toward a more neutral policy stance will ensure further progress in bringing inflation down to our 2 percent target,” she added.
The US central bank’s decision to cut rates to between 4.75 and 5.00 percent affects the rates at which commercial banks lend to consumers and businesses, bringing down the cost of borrowing on everything from mortgages to credit cards.
Alongside its half-point cut, the Fed penciled in a further 50 basis points of cuts this year, and 100 next year. Futures traders see a roughly 75 percent chance that the Fed will cut interest rates by more than 50 basis points before the end of the year, according to CME Group data.
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