Fed's Bowman: Greater confidence in falling inflation needed before more cuts

By Howard Schneider

WASHINGTON (Reuters) - Federal Reserve Governor Michelle Bowman said on Monday she wanted increased conviction that inflation will decline further this year before lowering interest rates again, particularly given uncertainty around the impact of the Trump administration's new trade and other policies.

"I would like to gain greater confidence that progress in lowering inflation will continue as we consider making further adjustments," to a policy rate that the Fed is currently holding steady in the 4.25% to 4.5% range, Bowman said in remarks prepared for delivery to an American Bankers Association conference. 

The benchmark interest rate "is now in a good place, allowing the committee to be patient and pay closer attention to the inflation data as it evolves," she said, referring to the Fed's policy-setting Federal Open Market Committee.

Holding rates steady for now "also provides the opportunity to review further indicators of economic activity and get further clarity on the administration's policies and their effects on the economy," she said.

"It will be very important to have a better sense of these policies, how they will be implemented, and establish greater confidence about how the economy will respond in the coming weeks and months," she said.

President Donald Trump, since taking office last month for his second term, has issued a blizzard of orders on trade and tariffs, but has also turned around in some cases and rescinded tariffs. 

Bowman, appointed by Trump during his first term, has been among the most hawkish at the Fed in her approach to inflation. She said she does expect inflation to slow further this year, with an upcoming report on the personal consumption expenditures price index excluding food and energy costs expected to have dropped from 2.8% in December to 2.6% in January. The PCE is the Fed's favored inflation gauge.

The expected inflation rate remains above the Fed's 2% target, and Bowman noted that the current 4% unemployment rate is below her estimate of full employment, while wages are expanding faster than what she regards as consistent with the central bank's inflation goal.

Inflation "has appeared to resume its downward path, and my baseline expectation has been that it will moderate further this year," she said. Even so, she added, "there are upside risks...for the inflation path."

The Fed is expected to hold the benchmark interest rate steady at its upcoming March meeting as policymakers watch the impact in particular of the import tariffs Trump has proposed or implemented so far.

(Reporting by Howard Schneider; Editing by Leslie Adler)