Bowman, Reflections on 2024: Monetary Policy, Economic Performance, and Lessons for Banking Regul...

Let me begin by recognizing the devastation caused by the fires in the Los Angeles area. My thoughts and prayers are with those who have been impacted and the
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Perspectives on Monetary Policy and Bank Regulatory Reforms

Update on Recent FOMC Meetings

In the past months, the Federal Open Market Committee has taken several steps to address rising inflation.

At the September meeting, the FOMC lowered the federal funds rate, despite my initial concerns that a larger cut could lead to accelerated inflation.

However, I supported subsequent quarter-point reductions as they represent a gradual approach towards restoring price stability.

The Economic Outlook

The U.S. economy remains strong, despite persistent inflation.

While core inflation has declined slightly, it remains above the Fed's 2% target, raising concerns about further price increases.

Economic growth in the past year was driven by consumer spending, though the labor market currently shows signs of loosening.

Risks to the Economic Outlook

I remain cautious about the risks to price stability, as the labor market remains tight.

Global supply chain disruptions, geopolitical tensions, and pent-up consumer demand could contribute to rising inflation.

Furthermore, I cannot rule out the risk that progress on inflation could stall.

The Path Forward for Monetary Policy

Given the ongoing economic strength and inflation concerns, it is prudent to be cautious in adjusting the policy rate.

Future decisions will be guided by the latest economic data and the potential for further inflation.

It is crucial to avoid prejudging the incoming administration's policies and to carefully assess their impact on the economy.

Approach to Bank Regulatory Policy

I advocate for a pragmatic approach to bank regulation and supervision, focusing on:

  • Prioritizing Safety and Soundness: Reforming the regulatory framework to address the issues highlighted by the Silicon Valley Bank failure.
  • Renewing Commitment to Regulatory Tailoring: Ensuring that regulations are proportionate to banks' size, complexity, and risk profile.
  • Increasing Transparency: Promoting trust and accountability by making the regulatory and supervisory processes more transparent.

Closing Thoughts

The new year presents an opportunity to reflect on the past and improve the bank regulatory framework.

By adopting a pragmatic approach, regulators can enhance their ability to promote a safe, sound, and effective banking system that drives economic growth.