Federal Reserve governor Michelle Bowman elaborated in a speech Tuesday about her decision to dissent from last week's jumbo rate cut, saying that she worried that a 50 basis point reduction would send the signal that central bank policymakers see economic weakness ahead.

"I was concerned that reducing the target range for the federal funds rate by 1/2 percentage point could be interpreted as a signal that the Committee sees some fragility or greater downside risks to the economy," Bowman said.

With no clear signs of material weakening or fragility, she added, it would have been better to cut by 25 basis points.

She also said she was worried a bigger first cut would lead markets to believe the Fed would cut at that pace going forward. Bringing the rate down too quickly also carries the risk of unleashing pent-up demand and "potentially reigniting inflationary pressures," she said.

Several of her colleagues spent Monday explaining why they were in favor of reducing interest rates by a jumbo 50 basis points, citing progress on inflation and a cooling job market.

Those twin developments "have emerged much more quickly than I imagined at the beginning of the summer," Atlanta Fed president Raphael Bostic said in a speech.

Minneapolis Fed president Neel Kashkari said in an essay Monday that he voted in favor of cutting by 50 basis points because "the balance of risks has shifted away from higher inflation and toward the risk of a further weakening of the labor market, warranting a lower federal funds rate."

Chicago Fed president Austan Goolsbee also said Monday he was "comfortable" with a 50 basis point cut, viewing it "as a demarcation" that the central bank is now back to thinking as much about achieving maximum employment as it is price stability.

If the Fed wants to avoid a recession, he added, then "we can’t be behind the curve."

Bowman made it clear Tuesday she is still concerned about inflation, more so that her colleagues.

“I continue to see greater risks to price stability, especially while the labor market continues to be near estimates of full employment.”

She said core inflation is uncomfortably high, and the upside risks to inflation remain prominent given that global supply chains continue to be susceptible to labor strikes and increased geopolitical tensions. She also noted high government spending could be inflationary.

Regarding the job market, Bowman said there have been signs of cooling, but wage growth is still elevated while consumer spending remains solid. She said her contacts say they’re not planning layoffs and continue to have difficulty hiring.

As a result, she is taking less signal from official job market data until there are clear signs spending growth and the job market have materially weakened. She also said immigration flows may be skewing readings on the job market.

Looking ahead, Bowman said she will remain cautious in her approach to adjusting interest rates going forward.

“It is important to note that monetary policy is not on a preset course,” she said.

She also noted her her estimate of the neutral rate – the rate that neither boosts nor slows growth — is much higher than pre pandemic.

Thus Bowman believes the Fed is much closer to neutral now and would arrive a neutral sooner if policy is dialed back quickly.

If the job market were to materially weaken she would support taking appropriate action, she added.

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