09:41 AM EDT, 09/24/2024 (MT Newswires) -- US Federal Reserve Governor Michelle Bowman said Tuesday that policy restriction should be reduced gradually as inflation remains a concern despite recent progress and that the labor market may not be as weak as the data has suggested.

Bowman was the only dissent to the Federal Open Market Committee's decision to lower the target range for the federal funds rate by 50 basis points to 4.75% to 5% at its meeting last week.

Bowman preferred to lower rates by only 25 basis points and issued a statement on Friday explaining her reasons, which she expanded on in her remarks to the Kentucky Bankers Association Annual Convention Tuesday.

"Although it is important to recognize that there has been meaningful progress on lowering inflation, while core inflation remains around or above 2.5%, I see the risk that the Committee's larger policy action could be interpreted as a premature declaration of victory on our price-stability mandate," Bowman said. "Accomplishing our mission of returning to low and stable inflation at our 2% goal is necessary to foster a strong labor market and an economy that works for everyone in the longer term."

Bowman said that she was also concerned that the 50-basis point cut would signal "that the Committee sees some fragility or greater downside risks to the economy" when the are no obvious signs of weakness.

"In the current economic environment, with no clear signs of material weakening or fragility, in my view, beginning the rate-cutting cycle with a 1/4 percentage point move would have better reinforced the strength in economic conditions, while also confidently recognizing progress toward our goals," Bowman said, adding that "a more measured approach would have avoided the risk of unintentionally signaling concerns about underlying economic conditions."

Unlike her colleagues, Bowman said that she still sees upside risks to inflation as the "prominent" issue and that employment has not weakened as much as the data would suggest.

"Although the labor market data have been showing signs of cooling in recent months, still-elevated wage growth, solid consumer spending, and resilient GDP growth are not consistent with a material economic weakening or fragility," Bowman said. "My contacts also continue to mention that they are not planning layoffs and continue to have difficulty hiring. Therefore, I am taking less signal from the recent labor market data until there are clear trends indicating that both spending growth and the labor market have materially weakened."

Bowman also raised concerns that markets would expect a 50-basis point rate reduction at every meeting if the FOMC started with a larger-than-normal rate cut and that pent-up demand and savings could be deployed if there is an expectation of rapid declines in interest rates in the near future, lifting inflation again.

The level of the neutral rate is also higher than it was before the pandemic, Bowman said, suggesting that current policy is not as restrictive as it appears and that the FOMC has less room to cut rates, also a reason for a slower pace of reduction.

"I will continue to monitor the incoming data and information as I assess the appropriate path of monetary policy, and I will remain cautious in my approach to adjusting the stance of policy going forward," Bowman said. "It is important to note that monetary policy is not on a preset course."