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Senior Federal Reserve official signals doubts over pause in US rate rises

A senior Federal Reserve official has warned recent US inflation and employment data had not convinced her that price pressures are under control as she left the door open to voting for more rate rises.

Michelle Bowman, a voting member on the Fed’s policy-setting committee, said the US central bank’s attempt to tighten financial conditions and damp the economy were having the “desired” effect, but she stopped short of endorsing a pause in rate rises.

“In my view, the most recent [consumer price inflation] and employment reports have not provided consistent evidence that inflation is on a downward path,” she said at an event in Frankfurt on Friday. Bowman said she wanted to see more data before deciding whether to vote in favour of holding rates at their current level when the committee next meets in June.

“Should inflation remain high and the labour market remain tight, additional monetary policy tightening will likely be appropriate to attain a sufficiently restrictive stance,” she added.

Earlier this month, Jay Powell, the Fed chair, sent a strong signal that the central bank was preparing to hold off on another rate rise next month, after raising the benchmark rate above 5 per cent at its most recent meeting.

“We feel like we’re getting close or maybe even there,” he said, pointing to the effect of rate rises and an expected credit crunch stemming from recent bank failures.

Bowman’s comments suggest Powell will need to forge a consensus on what looks like an increasingly divided committee. Other voting members such as Austan Goolsbee of the Chicago Fed seem to be more worried about the credit crunch.

Meanwhile, Bowman also warned her colleagues against a knee-jerk reaction following the recent implosion of Silicon Valley Bank and other lenders. She said implementation of new rules and regulations should not take place until there was a deeper investigation of what went wrong.

Bowman called for a fresh review conducted by an independent third party to “supplement” what she described as the “limited internal review” that was published by the Fed’s vice-chair for supervision, Michael Barr, late last month.

Such a report “would help to eliminate the doubts that may naturally accompany any self-assessment prepared and reviewed by a single member of the board of governors,” added Bowman.

In that report, Barr said SVB’s failures stemmed from the weakening of regulations during the administration of Donald Trump and mistakes by internal supervisors who were too slow to act on the errors of the bank’s management.

Barr also signalled his support for stronger supervision and regulation for banks with more than $100bn in assets, changes that would not require congressional approval.

Bowman acknowledged that some changes, especially with regard to how the Fed supervises lenders, are likely necessary but pushed back on the need for “radical reform of the bank regulatory framework”.

“We should avoid using these bank failures as a pretext to push for other, unrelated changes to banking regulation,” she said.

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