The U.S. continues to face a greater risk from underlying inflation than from any weaknesses in the labor market, despite recent progress, a senior Federal Reserve official said Friday.
The Federal Reserve has a dual mandate from Congress to keep both inflation and unemployment under control, and recently began rolling back high interest rates in order to better support the labor market.
After two rate cuts since September totalling three quarters of a percentage-point, the Fed's benchmark lending rate now sits between 4.50 and 4.75 percent.
At least one policymaker on the Fed's rate-setting committee has suggested cautious support for a quarter-point rate cut later this month, while others have maintained a wait-and-see approach, refusing to show their hand ahead of time.
"I continue to see greater risks to the price stability side of our mandate, especially when the labor market continues to be near full employment," Fed governor Michelle Bowman told a virtual event hosted by the Missouri Bankers Association.
"I think we’re still seeing that the U.S. economy is strong," added Bowman, a permanent voting member of the Fed's rate-setting committee.
"But core inflation continues to be elevated," she said, referring to the underlying measure of inflation which strips out volatile food and energy costs.
The Fed's favored inflation gauge ticked up slightly in October to 2.3%, slightly above the Fed's long-term target of two percent.
But the so-called "core" inflation figure remained stubbornly high at 2.8%, indicating that underlying price pressures
"In my view, upside risks to inflation remain prominent due to possible disruptions in supply chains from labor strikes and from geopolitical tensions that we're seeing more frequently around the world," Bowman said.
She added that "increased trade tensions and expansionary government spending," were also putting pressure on prices, and that fresh inflation data published next week would help support her decision at the rate decision on December 17 and 18.
Financial markets are pricing in a probability of more than 85 percent that the Fed will vote to cut instead of remaining on pause, according to data from CME Group.