Fed official willing to raise interest rate if progress on inflation stalls

A key Federal Reserve official said Tuesday she is willing to increase the interest rate if the progress on inflation stalls or even reverses.

"Given the risks and uncertainties regarding my economic outlook, I will remain cautious in my approach to considering future changes in the stance of policy," Michelle Bowman, a member of the Fed Board of Governors, told Policy Exchange, a London-based think tank.

She emphasized that reducing the Fed's policy rate too soon or quickly could result in a rebound in inflation, which in return would require further policy rate increases in the future to return inflation to the central bank's 2% target in the long run.

The Fed on June 12 skipped a rate hike for the fourth time this year, after skipping interest rate increases four times during 2023. The central bank last made a rate hike of 25 basis points on July 26 last year.

Over the course of 11 meetings from March 2022 to July 2023, the central bank raised rates by a total of 525 basis points to fight record inflation, which in the summer of 2022 rose to its highest point in more than 40 years.

While many analysts anticipated the Fed's first rate cut coming in the first half of this year, the earliest expectation now points to September, as the Federal Open Market Committee (FOMC) officials remain cautious.

"However, we are still not yet at the point where it is appropriate to lower the policy rate. In my view, we should consider a range of possible scenarios that could unfold when considering how the FOMC's monetary policy decisions may evolve," said Bowman, who has a voting right in the FOMC this year.