The U.S. central bank will continue to raise its benchmark interest rate in “coming meetings,” said Federal Reserve Governor Michelle Bowman on Thursday.
“We still have a lot of work to do to bring our policy rate to a level that is sufficiently restrictive to bring down inflation over time,” Bowman said, in a talk at the KBW CEO Strategy Forum.
At the same time, as the Fed’s benchmark rate gets closer to restrictive territory, Bowman said it will be appropriate for the Fed to slow down the pace of rate increases.
“Moderating the pace and the level of rate increases will allow us to more fully assess the effects of our past monetary policy actions,” Bowman said.
The Fed Governor said the exact size of rate hikes and the ultimate level will depend on the course of inflation. She said her estimate of the terminal rate is slightly higher than it was in September.
Fed officials release an update their “dot plot” projections on the path of interest rates after their meeting on Dec. 13-14.
On Wednesday, Fed Chairman Jerome Powell said the downshift in the pace of rate hikes “may come as soon as the December meeting.”
Economists interpreted Powell’s remark as a signal the Fed will raise its benchmark rate by a half percentage point at its meeting in two weeks, bringing it to a level of 4.25%-4.5%.
That’s a slowdown from the string of four 0.75 percentage point rate hikes approved from June-November.
Markets interpreted Powell’s remarks as dovish.
Almost 50% of traders in the fed funds futures market now expect a pause at the Fed’s next policy meeting in early February. They only project one more quarter-point rate hike in March. That puts the terminal rate in a range 4.75%-5%.
The yield on the 10-year Treasury note
fell to 3.6% in the wake of Powell’s comments. This is down from 4.2% after the Fed’s policy meeting in early November.