In a speech at the Reykjavík Economic Conference, Federal Reserve Board Vice Chair for Supervision Michelle Bowman set out the framework she uses to judge whether the Federal Open Market Committee should cut, raise, or hold the federal funds rate. Applying that framework to current conditions, she said policy should remain moderately restrictive for now while policymakers get more clarity on the economic and inflation effects of the conflict in Iran. She also argued that the Fed should look through temporary increases in headline inflation driven mainly by energy prices and one-off tariff effects, provided underlying inflation continues to move toward 2 percent and the Fed’s credibility is preserved. Bowman said her approach combines current data, private-sector intelligence, and an assessment of where the policy rate sits relative to neutral. She highlighted real GDP and private domestic final purchases, unemployment and payroll trends, and core and trimmed mean personal consumption expenditures inflation as key inputs. On current conditions, she described growth as moderate to solid and supported by AI-related investment, but said the labor market remains vulnerable despite recent stabilization, with the unemployment rate at 4.3 percent in April, a declining job-finding rate, and job growth concentrated in less cyclical sectors. Total PCE inflation rose to 3.8 percent in April and core PCE to 3.3 percent, which she linked largely to higher energy prices, tariff effects, and software price changes, while underlying measures excluding one-off factors were closer to 2 percent. Looking ahead, Bowman said the persistence of the Iran conflict will be important for her policy assessment. If higher oil prices and supply disruptions prove temporary, she expects only a temporary imprint on inflation and limited domestic activity effects. If they persist into the second half of the year or start to feed more broadly into PCE inflation, she said inflation risks would carry more weight. She noted that one more month of employment and inflation data will arrive before the June FOMC meeting.
Federal Reserve Board2026-05-29
United States Federal Reserve Board's Bowman outlines rate decision framework and supports keeping policy moderately restrictive
Federal Reserve Board Vice Chair for Supervision Michelle Bowman outlined her framework for assessing whether the Federal Open Market Committee should cut, raise, or hold the federal funds rate, and said current conditions warrant keeping policy moderately restrictive while the economic and inflation effects of the conflict in Iran become clearer. She emphasized that the Federal Reserve should look through temporary energy- and tariff-driven increases in headline inflation as long as underlying inflation continues to move toward 2 percent and credibility is maintained, and highlighted recent data showing moderate growth, a vulnerable but stabilizing labor market, and underlying inflation measures closer to 2 percent than headline figures.