I'm prepared to raise interest rates further, a Fed governor says

One of the Fed governors who votes on interest rate changes has urged to hold off on rate cuts this year.

During her speech to the Policy Exchange think tank, Michelle Bowman—a member of the Federal Open Markets Committee—said there isn't enough evidence that inflation is back to normal.

"I think if we saw a lowering of inflation and also a deterioration in the labor market that might be a little bit more indicative that we were closer in needing to move," Bowman added.

Meanwhile, shelter and transportation costs are blowing through the roof, dragging inflation higher, according to the governor.

If costs keep rising, she went as far as saying she would be willing to hike rates further.

During her speech, she also went on to predict that U.S. monetary policy may diverge from other advanced economies in the months ahead.

"Inflation and labor market developments in the U.S. have unfolded differently in recent quarters compared to many other advanced economies," Bowman said.

She cited "a more open immigration policy and significantly larger discretionary fiscal stimulus since the pandemic" as two key reasons why.

Explaining her outlook, Bowman warned that it's unlikely further supply-side improvements will continue to reduce inflation going forward.

The governor also shared fears that "spillovers from regional conflicts could disrupt global supply chains" once again—potentially causing food and energy prices to rise.

"There's also the risk that the loosening in financial conditions since last year—reflecting considerable gains in equity valuations and additional fiscal stimulus—could add momentum to demand," Bowman said.

That would stall "any further progress or even causing inflation to re-accelerate," she added.

According to the governor, there's no shortcut to fixing inflation. She thinks interest rates have to hover at 5% for some time before inflation returns to the Fed's 2% target.

A cautious tone

Besides the fact that inflation is still above the target, Bowman stressed that there are too many "risks and uncertainties" for rate cuts.

"Reducing our policy rate too soon or too quickly could result in a rebound in inflation—requiring further future policy rate increases to return inflation to 2% in the longer run," she said.

Her 30-minute speech was accompanied by an insightful question-and-answer session by Lord Bridges, who chairs the Economics Affairs Committee in the British House of Lords.

Bowman was asked for her insights on the central bank independence, with reports suggesting that Donald Trump would want greater influence over the Fed if he's re-elected.

She stressed that it's important for the continued independence of the Fed to be recognized—irrespective of who's the next president.

"We are an apolitical and independent body, and it's important that we continue that way … we are independent in our decision making," Bowman said.

The governor went on to argue that she doesn't believe the Fed suffers from "groupthink" and that it's vital to put economic figures into context.

"I spend a lot of time going out into the country visiting businesses and people and bankers to learn a little bit more behind the data—to understand exactly what that data is telling us and what it's not telling us," she said.