michelle w bowman : brief remarks on the economy, monetary policy and bank regulation speech by ms michelle w bowman, member of the board of governors of the federal reserve system, at the idaho, nevada, oregon and washington bankers associations 2024 annual convention, stevenson, washington dc, 27 june 2024. * * * i would like to thank the idaho, nevada, oregon, and washington bankers associations for the invitation to join you this morning. 1 it's a pleasure to be here in washington state to speak with your members. direct interactions like this, outside of washington, d. c., enable me to develop a deeper understanding of what is happening in the banking industry and the regional economy. before sharing some thoughts about the current trajectory of regulatory approvals and bank merger policy, i will discuss my views on the economy and monetary policy. update on the economy and monetary policy outlook over the past two years, the federal open market committee ( fomc ) has significantly tightened the stance of monetary policy to address high inflation. at our meeting earlier this month, the fomc voted to continue to hold the federal funds rate target range at 51 / 4 to 5 - 1 / 2 percent and to continue to reduce the federal reserve's securities holdings. after seeing considerable progress on slowing inflation last year, we have seen only modest further progress this year. the 12 - month measures of total and core personal consumption expenditures inflation have moved roughly sideways or slightly down since december and remained elevated at 2. 7 percent and 2. 8 percent, respectively, in april. the consumer price index ( cpi ) report for may showed 12 - month core cpi inflation slowing to 3. 4 percent from 3. 6 percent in april. however, with average core cpi inflation this year through may running at an annualized rate of 3. 8 percent, notably above average inflation in the second half of last year, i expect inflation to remain elevated for some time. the recent pickup in inflation in the first several months of 2024 was evident across many goods and services categories, suggesting that inflation was temporarily lower in the latter half of last year. prices continue to be much higher than before the pandemic, which is weighing on consumer sentiment. inflation has hit lower - income households hardest since food, energy, and housing services price increases far outpaced overall inflation throughout this episode. economic activity increased at a strong pace last year but appears to have moderated early this year. first - quarter gross domestic product growth was

##meted in february. together, these factors are likely to restrain spending growth in the period ahead. this restraint should be offset somewhat beginning in the late spring, when many households will start to receive the tax rebates that are the centerpiece of the recent fiscal stimulus package. business investment in equipment and software also decelerated toward the end of last year, and a number of factors appear likely to weigh on spending in the near term. indicators of business sentiment from a variety of national and regional surveys have deteriorated, on balance, in recent months. moreover, spreads on corporate bonds across a wide range of credit qualities have been moving up, especially for riskier firms, and an increasing number of banks report that they are tightening lending standards for business loans. all told, real spending on equipment and software seems likely to be subdued in the near term. it is anticipated that investment spending should receive some help in the second half of this year from the accelerated depreciation provisions in the fiscal stimulus bill ; however, based on experience with a similar tax provision in 2002 and 2003, the magnitude and timing of these effects is very uncertain. investment in nonresidential structures continued to grow robustly through the end of last year, with most major components contributing to the strong gains. however, prospects for the coming year are less buoyant given the tightening credit conditions as well as the slowdown in economic activity more broadly. turning now to international trade, export growth has been a bright spot for the u. s. economy, boosted by past declines in the exchange value of the dollar and solid economic growth abroad. indeed, rising demand for u. s. exports has offset some of the negative effects on producers here in the united states from the deterioration in domestic spending. although foreign economies also have been affected by financial turmoil, and growth among our trading partners is showing some signs of slowing, expanding exports should continue to help support economic activity in the united states. in the labor market, private payrolls decelerated over the course of 2007 and were reported to have been unchanged in january. the unemployment rate, after remaining near 4 - 1 / 2 percent in the first half of last year, has moved up about 1 / 2 percentage point to nearly 5 percent, its highest level since late 2005. and the labor market appears to have softened further in february. initial claims for unemployment insurance, which can be a timely indicator of labor market activity, moved up appreciably in february. moreover,