Federal Reserve Vice Chair for Supervision Michelle Bowman said Tuesday she is seeing signs that inflation pressures are persisting while the job market appears to be firming, adding that “there is still work to do to bring inflation closer to 2 percent.” She spoke at the Council on Foreign Relations in Washington on the day a hotter-than-expected consumer price report was released, and gave the same remarks at a second event later that day.
Progress on lowering inflation “has stalled over the past two years or so,” Bowman said. Based on Tuesday’s consumer price data, she estimated that core inflation by the Fed’s preferred measure, the personal consumption expenditures price index excluding food and energy, likely rose to 3.3% over the 12 months through October. Tariffs, energy and AI-related price pressures each accounted for roughly one-fourth of the amount by which core inflation exceeded the target over the 12 months through September, she said, with the rest likely reflecting lingering effects of earlier price shocks.
Bowman also pointed to risks on the other side. Financial conditions have tightened “a bit” because of lower stock prices, higher private interest rates and a stronger dollar, she said, and the benefit of further tightening “has to be carefully weighed against its costs” for rate-sensitive parts of the economy such as housing.
She warned about the financing of the artificial intelligence buildout. AI-related debt is on track to exceed $800 billion this year, she said, and potential payments on other obligations, such as long-term leases, are estimated at more than three times that amount. If AI revenues fall short of rising costs, “we could see a sharp correction in equity prices for AI firms,” she said.
The Fed held its benchmark rate in a range of 3.75% to 4% at its October meeting. Before the next meeting in December, officials will receive the October PCE inflation report and the November jobs report, Bowman noted, adding that monetary policy “is not on a preset course.”
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