One of the most hawkish officials at the Federal Reserve: Still concerned about inflation, not explicitly supporting a rate cut in September

On Tuesday, one of the most hawkish officials at the Federal Reserve, Governor Bowman, who has permanent voting rights during her tenure, stated that due to concerns about ongoing inflation risks in the United States, she remains cautious about any changes in Fed policy.

Bowman also warned that overreacting to any single data point could jeopardize the progress that has already been made. "We need to remain patient and avoid overreacting to any single data point, which could undermine the continued progress in reducing inflation."

Bowman's remarks refer to a significant shift in focus by several Fed officials following the notably weak July nonfarm payrolls report. She noted that discrepancies in the latest nonfarm payrolls report should be approached with caution, highlighting that while the hiring strength over the past year may have been overstated, the rise in unemployment may also exaggerate the extent to which the labor market is cooling.

Bowman mentioned that in recent years, the increased challenges in measurement and the frequency and extent of data revisions have made assessing the current economic conditions and predicting future developments more difficult. Therefore, she will maintain a cautious stance when considering adjustments to the current policy stance.

While Bowman did not express readiness as before to support further rate hikes when necessary, marking the second consecutive public speech where she did not mention rate hikes, on the other hand, she also hardly indicated readiness to support rate cuts at the Fed's meeting on September 17-18.

Currently, the market widely expects the Fed to take action to cut rates at the September meeting. The question is, by how much will the first rate cut be, with the market currently leaning towards a 25 basis point cut rather than a 50 basis point cut. Additionally, the market is also watching the stance of Fed officials in terms of for and against votes.

Bowman expects that under the current policy stance, U.S. inflation should continue to cool down. If the upcoming data continues to show sustainable progress towards the Fed's 2% inflation target, then taking gradual actions to lower the federal funds rate in order to prevent monetary policy from becoming overly tight on economic activity and employment would be appropriate.