Fed's Bowman still supports rate cuts despite backing pause at recent meeting

By Howard Schneider

WASHINGTON, Jan 30 (Reuters) - U.S. Federal Reserve Vice Chair for Supervision Michelle Bowman said on Friday she still feels interest rates should fall, but voted to hold monetary policy steady this week only to gather more data before the next reduction in borrowing costs.

Bowman said she anticipates the need ?for three quarter-percentage-point rate cuts this year and the decision following the end of the U.S. central bank's two-day policy meeting ?on Wednesday was only related to the timing of the next move.

After trimming rates by ?three-quarters of a percentage point at the last three meetings of ?2025, "the question at ?this meeting was about the timeline for implementing ... essentially choosing between continuing to remove policy restraint and arriving at my estimate ?of neutral by the April meeting, or moving ?policy to neutral at a more measured pace throughout this year," Bowman said at a graduate banking school event in Hawaii.

The Fed's next meeting ?is scheduled for March 17-18. Bowman said ?her analysis of ?the risks facing the economy, with inflation in her view likely to move towards 2% but the job market weak, remains the same as it has ?been, and warrants looser monetary policy.

But she also agreed that the job market had shown some signs of stabilization, and given the data gaps that exist because of last fall's U.S. government shutdown, she felt it proper to wait until the next meeting to consider reducing the policy rate from the current 3.50%-3.75% range.

"The labor market is fragile," Bowman ?said. "I could ?have voted in favor of continuing to remove policy restraint in order to hedge more against the risk of further labor market deterioration. But we have seen ?some signs of stabilization ... We can afford to take time and 'keep policy powder dry' for a little while in order to carefully assess how the lower degree of policy restraint is flowing through to broader financial conditions and strengthening the labor market."

But she said any rate-cut pause should be brief.

"We should also not imply that we expect to maintain the current stance of policy for an ?extended period of time," Bowman said.

The Fed voted 10-2 to hold rates steady on Wednesday. Ahead of the meeting, Bowman had been considered a possible dissenting voice along with Fed Governors Christopher Waller and Stephen Miran. Waller and Miran ?dissented in favor of a rate cut. (Reporting by Howard Schneider; Editing by Paul Simao)