Fed's Bowman says inflation is broadening: 'There's more work to do' on rates

Federal Reserve governor Michelle Bowman said Tuesday that inflation is showing signs of broadening and suggested raising interest rates further to slow the pace of price increases.

"Inflation pressures have persisted for longer than I had hoped and have shown recent signs of broadening," Bowman said in a speech in Washington at the Council on Foreign Relations.

At the same time, she noted job market conditions appear to be firming.

"This indicates that there is still work to do to bring inflation closer to 2%," she said.

She is also monitoring volatility in the markets to see how financial conditions influence the economic outlook.

Data released Tuesday revealed that inflation remained sticky in October. The Consumer Price Index rose 0.4% in October , compared with expectations of 0.3%, marking a slight cooldown from September's 0.6% gain. "Core" inflation, which strips out volatile food and energy prices, rose 0.3%, unchanged from September.

"The latest data suggest that these pressures may be broadening," said Bowman. "It is important to ensure that those inflationary pressures do not intensify, further broaden, or become embedded in consumer and business expectations.

"But today's Consumer Price Index data suggest that inflation pressures may persist for longer."

The hotter-than-expected report has Wall Street pricing in a rate hike next month as a done deal. The question is how big — 25 basis points or 50 basis points.

Looking at CPI, Bowman estimates that the Fed's preferred inflation gauge — the core Personal Consumption Expenditures index — likely moved up to 3.3% in October from 3.1% in September on higher energy prices and the AI build-out that flowed to goods and services prices.

While she expects the effects of tariffs to wane and energy prices to come down when the Middle East conflict resolves, she said inflation from the AI build-out could persist.

"Monetary policy cannot offset the direct effects of tariffs and energy costs on inflation, but it plays a central role in containing the second-round effects," Bowman said.

Bowman raised the risk that if geopolitical tensions persist, energy prices may stay elevated in the near term, increasing the possibility that core inflation may also stay elevated because of increased pass-through to consumer prices.

She also sees a number of risks to the outlook for the economy, including a large correction in stock prices if returns on AI investment fall short of expectations, and a sharp increase in private long-term interest rates. Bowman noted lower stock prices could undermine the resilience seen in consumer spending.