San Francisco Frontiers - Fed official sees chance to lower inflation without major downturn

The central bank has raised interest rates multiple times last year to rein in decades-high inflation, working to cool the world's biggest economy while trying not to tip it into recession.

Slowing the economy typically means that job creation also decelerates, as borrowing becomes more expensive.

But Fed governor Michelle Bowman said Tuesday that "unemployment has remained low as we have tightened monetary policy and made progress in lowering inflation," in a prepared speech to an event in Florida.

"I take this as a hopeful sign that we can succeed in lowering inflation without a significant economic downturn," she added.

Last week, Labor Department figures showed that job gains remained robust in December while the unemployment rate dipped to 3.5 percent.

This comes despite an aggressive campaign by the Fed, which has raised interest rates rapidly from close to zero to 4.25-4.50 percent.

Bowman said she is encouraged by the strength of the job market, along with low debt levels among households.

"Low debt and strong balance sheets together with the strong labor market mean that consumers and businesses can continue to spend even as economic growth slows," she said.

But she warned that the Fed's policy-setting Federal Open Market Committee will continue raising interest rates as there remains much work to do to lower inflation.

The benchmark lending rate will likely have to remain at a "sufficiently restrictive" level for some time to restore price stability, she said.

She also touched on crypto activities, adding that the Fed and banking agencies will continue focusing on this area "in light of the significant risks" they may pose.

Without hindering innovation, "we are thinking through some of these issues and what a regulatory approach could look like," Bowman said.

O.Anderson--SFF