US Fed's lone dissenter worries large rate cut a 'premature declaration of victory'

Dissenting votes have been rare during Jerome Powell's tenure as Fed chair

Michelle Bowman is considered to be one of the more hawkish members on the US Federal Reserve Board. Bloomberg

The lone dissenting member of the US Federal Reserve's 50-basis point cut called for a more measured approach to cutting interest rates, suggesting that beginning with such a strong action could send the wrong message on inflation.

Michelle Bowman became the first Fed governor since 2005 to dissent on a monetary policy decision when she voted against the 50-basis point cut on Wednesday. She favoured a quarter-point cut instead.

The Fed's decision lowered its benchmark rate to 4.75 per cent, from 5 per cent. The median Fed official pencilled in two more quarter-point reductions this year, according to its updated economic projections.

In a statement issued on Friday, Ms Bowman acknowledged it was appropriate to begin lowering rates given the progress made in tackling inflation but worried that moving too quickly could reignite demand.

“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,” she said.

“I believe that moving at a measured pace towards a more neutral policy stance will ensure further progress in bringing inflation down to our 2 per cent target.”

Ms Bowman, considered to be one of the more hawkish members on the Federal Reserve Board, has publicly voiced her doubts about the status of the Fed's inflation battle. As recently as August, she expressed her view that inflation remained “uncomfortably above” the Fed's 2 per cent goal.

Earlier on Friday, Christopher Waller, one of the other seven Fed governors, said recent data shows inflation may have been running below the Fed's 2 per cent target over the last four months ending in August. In an interview with CNBC, he estimated the Fed's preferred inflation metric is running at less than 1.8 per cent.

“What’s got me a little more concerned is inflation is running softer than I thought,” he said.

Dissents have been rare during Fed Chairman Jerome Powell's tenure. After Kansas City Fed president Esther George dissented on the size of an interest-rate increase in June 2022, the Fed enjoyed a long streak of unanimity on policy decisions until this week.

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  FILE PHOTO: The Federal Reserve building in Washington, U. S. , January 26, 2022. REUTERS / Joshua Roberts / File Photo

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  The Federal Open Market Committee (FOMC) consists of 12 members: seven from the Board of Governors, the New York Fed president, and four presidents of regional Fed banks who serve on a rotating basis.

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  Federal Reserve Chairman Jerome Powell. EPA

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  Fed Vice Chair Phillip Jefferson listens during a 'Fed Listens' event in Washington. Bloomberg

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  Michelle Bowman, one of the governors of the US Federal Reserve. Bloomberg

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  Federal Reserve Governor Lisa Cook is the first African American woman to serve on the US central bank's board. Bloomberg

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  Chris Waller is one of seven members of the Federal Reserve Board of Governors to serve on the Federal Open Market Committee. Bloomberg

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  Fed Governor Christopher Waller (left) and Fed Vice Chair Philip Jefferson (right) at the Federal Reserve building in Washington. Bloomberg

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  Fed Chair Jerome Powell holds a press conference after the FOMC's meeting in March. AFP

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  Fed Governor Adriana Kugler was appointed to the board in 2023. Reuters

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  File - Federal Reserve Board of Governors Vice Chair for Supervision Michael Barr. AP

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  John Williams, president and of the Federal Reserve Bank of New York, which implements monetary policy on the FOMC's behalf. Reuters

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  Cleveland Fed President Loretta Mester, a voting member on the FOMC in 2024. Reuters

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  Raphael Bostic, president of the Federal Reserve Bank of Atlanta and a voting member of the FOMC in 2024. Bloomberg.

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  Federal Reserve Bank of Richmond President Thomas Barkin poses during a break at a Dallas Fed conference on technology, 2019. Reuters

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  San Francisco Federal Reserve Bank President Mary Daly at the bank’s headquarters in San Francisco, 2019. Reuters

They can potentially undermine the effectiveness of the Fed's leadership, while others argue dissents can help break up the central bank's groupthink.

Mr Powell played down the dissent during his news conference on Wednesday, telling reporters that all 19 participating members in this week's meeting forecast several rate cuts this year.

“There is a dissent, and there's a range of views, but there's actually a lot of common ground as well,” he said.