Lone Fed dissenter worried bigger rate cut would send signal of ‘economic fragility’

Federal Reserve governor Michelle Bowman elaborated in a speech on Tuesday about her decision to dissent from last week’s jumbo rate cut, saying that she worried that a 50 basis point reduction would send the signal that central bank policymakers see economic weakness ahead.

“I was concerned that reducing the target range for the federal funds rate by half percentage point could be interpreted as a signal that the committee sees some fragility or greater downside risks to the economy,” Bowman said.

With no clear signs of material weakening or fragility, she added, it would have been better to cut by 25 basis points.

She also said she was worried a bigger first cut would lead markets to believe the Fed would cut at that pace going forward. Bringing the rate down too quickly also carries the risk of unleashing pent-up demand and “potentially reigniting inflationary pressures,” she said.

 

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