Michelle W Bowman: Brief remarks on the economy and insights from past bank regulatory reform efforts

Brief remarks by Ms Michelle W Bowman, Member of the Board of Governors of the Federal Reserve System, at the Connecticut Bankers Association Annual Meeting, White Sulphur Springs, West Virginia, 7 October 2023. 

The views expressed in this speech are those of the speaker and not the view of the BIS.

Central bank speech  | 
10 October 2023

It is a pleasure to be with you here today. As a former community banker and a former state bank commissioner, I bring a unique perspective to my service on the Board of Governors of the Federal Reserve System. These different experiences help inform my views on the Fed's important role in bank regulation and supervision. Over the past five years, I have found that one of the most informative, enjoyable, and productive aspects of my work at the Fed is hearing from bankers about issues that are important to you, and that affect you and your customers. This includes, of course, the impact of the Fed's regulation and supervision. So today, I would like to share some thoughts about that and, should changes to the bank regulatory framework be necessary, how we can support thoughtful and considered changes.

Before we turn to our conversation, I'd like to offer a few thoughts on the economy and monetary policy, in light of our Federal Open Market Committee (FOMC) meeting last month. As you know, at that meeting, my colleagues and I voted to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent, after raising rates sharply over the past year and a half to reduce inflation. Since then, there has been considerable progress on lowering inflation, and the FOMC has responded this year with a more gradual pace of increases. In keeping with this approach, we held the policy rate steady in June, raised it by 25 basis points in July, and then held steady again last month. Inflation continues to be too high, and I expect it will likely be appropriate for the Committee to raise rates further and hold them at a restrictive level for some time to return inflation to our 2 percent goal in a timely way.

Most recently, the latest inflation reading based on the personal consumption expenditure (PCE) index showed that overall inflation rose, responding in part to higher oil prices. I see a continued risk that high energy prices could reverse some of the progress we have seen on inflation in recent months.

At the same time, the economy has remained strong as the FOMC has tightened monetary policy. Real gross domestic product (GDP) has been growing at a solid pace. Consumer spending has remained robust, and the housing sector appears to be continuing to rebound. The most recent employment report showed a labor market with solid job gains. The average pace of job gains over the past year has slowed somewhat and the labor force participation rate has also improved over the same time frame, a sign that labor market supply and demand may be coming into better balance.