The Fed’s lone dissenter on the big rate cut says she’s concerned about ‘premature declaration of victory’ over inflation

Federal Reserve Board Chairman Jerome Powell

The Federal Reserve’s decision to cut interest rates by 50 basis points got a near-unanimous vote.

In a historic dissent, Michelle Bowman, a Fed governor, advocated instead for a smaller 25 basis point cut.

In a statement released Friday, Bowman voiced the concerns behind her disagreement with the rest of the rate-setting committee, explaining that such a big initial cut could dash hopes of reaching the Fed’s 2% inflation goal.

“Although it is important to recognize that there has been meaningful progress on lowering inflation, while core inflation remains around or above 2.5 percent, 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 wrote.

Leading up to the rate cut, Fed Chair Jerome Powell repeatedly emphasized the Fed’s goals of maximum employment and a 2% inflation rate.

In the weeks prior to Wednesday’s policy meeting, Powell seemed increasingly concerned about the labor side of the dual mandate amid data that showed the labor market slightly weakening.

Inflation, meanwhile, has ticked down, with the consumer price index rising 2.5% year over year in August.

Bowman said she believes inflation could come closer to the Fed’s target with more gradual easing, which would avoid a spike in demand from lower borrowing costs.

“We have not yet achieved our inflation goal. 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. This approach would also avoid unnecessarily stoking demand,” Bowman said.

Bowman added that despite her dissent, she respects her colleagues’ decision, and is committed to working with them to “ensure that monetary policy is appropriately positioned” for maximum employment and a 2% inflation rate.

Bowman’s dissent marked the first by a Fed governor since 2005. Dissent has become uncommon among Fed governors, who, with the Fed Chair and New York Fed president, make up the central bank’s eight permanent voting members.

The remaining four votes come from rotating Fed presidents, who are more frequent dissenters.

Bowman has long advocated for tighter monetary policy to rein in inflation, skewing hawkish among the Fed’s members.

“We should keep in mind the historical lessons and risks associated with prematurely declaring victory in the fight against inflation,” Bowman said in a speech last year.