Inflation in the U.S. just hit its highest reading since 2023. A senior Fed official's response: don't read too much into it.
That's the message from Michelle Bowman, the Fed's Vice Chair for Supervision, in a speech Friday at a central banking conference in Iceland. Her argument is that the price spike is coming from energy costs tied to the Iran war, and the Fed shouldn't react to a shock it can't control.
Bowman backed last month's decision to keep language in the Fed's statement signaling more rate cuts are still possible. That puts her at odds with a growing group of officials who think the next move could just as easily be a hike.
Her view: lifting rates to fight an energy-driven price jump would slow the economy for no good reason. "Reacting to temporarily elevated energy price inflation would add unwarranted policy restraint," Bowman said.
The Fed's current stance is what she calls "moderately restrictive" - tight enough to cool prices, loose enough to keep jobs steady. She wants to hold that line and wait.
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The Fed's preferred inflation gauge - the personal consumption expenditures index, or PCE - climbed 3.8% over the year ending in April. That's nearly two full points above the Fed's 2% target.
Two things are pushing it higher. Oil prices have jumped since the U.S. got involved in Iran, and tariffs from the Trump administration are still working their way through the economy.
Bowman expects both effects to fade. She called the tariff impact a "one-off" and said energy-driven spikes usually pass if the Fed stays credible on its long-term goal.
Bowman didn't rule out a shift, though. The longer the Iran war drags on, the bigger the risk that higher energy costs spread into the rest of the economy - food, shipping, services, everything that runs on fuel.
If that happens, her tone changes. "The more persistent higher oil prices are - or if we start to see broader effects of higher energy prices on PCE inflation - the more likely I will consider shifting my approach," she said.
For now, she's giving the war a pass.
The next PCE reading will show whether the energy spike is staying contained or bleeding into other categories. The path of oil prices and the Iran conflict will decide what that reading looks like.
Bowman is betting the inflation jump is a shock, not a trend.
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