REYKJAVÍK, Iceland —Federal Reserve Vice Chair for Supervision Michelle Bowman said policymakers should be cautious about overreacting to inflation driven by rising energy prices tied to the conflict in the Middle East, arguing that temporary shocks should not automatically trigger a tighter monetary policy response, Reuters reported.
Speaking at a central banking conference in Iceland, Bowman said the Fed should distinguish between short-term inflation pressures and broader, more persistent inflation trends. She warned that responding too aggressively to temporary increases in oil and gasoline prices could unnecessarily weaken economic activity and put additional strain on the labor market, Reuters said.
At the same time, Bowman said a prolonged conflict that keeps energy prices elevated into the second half of the year could alter the Fed’s outlook and require policymakers to reassess inflation risks. Her comments come as markets have sharply reduced expectations for interest-rate cuts and some Fed officials have begun discussing the possibility that rates may need to move higher if inflation remains elevated, Reuters noted.
Bowman’s remarks contrasted with comments from Jeffrey Schmid, who cautioned against assuming the energy shock will prove temporary and said inflation has remained above the Fed’s 2% target for too long. Fed officials are widely expected to leave rates unchanged at their next meeting, but the ongoing war, rising energy costs and renewed inflation pressures have added uncertainty to the outlook for monetary policy.