By Ann Saphir
Nov 10 (Reuters) - Federal Reserve Vice Chair of Supervision Michelle Bowman on Tuesday added her voice to the chorus of colleagues pointing to inflation as their biggest priority, though she stopped short of calling for interest-rate hikes and said she expects price pressures to abate next year as the effect of recent shocks wears off.
"Today, I am seeing signs that inflation pressures are persisting, while labor market conditions appear to be firming," Bowman said in remarks prepared for delivery to the Council on Foreign Relations in Washington, DC.
"This indicates that there is still work to do to bring inflation closer to 2%."
The core personal consumption expenditures price index likely rose 3.3% in October, she said, driven by higher energy prices and AI-related demand. But lack of progress on inflation, she added, has not been driven by the labor market, which has improved but is not overheated.
As pressures from the AI buildout and the Middle East conflict "wane or unwind and with no inflationary pressures emerging in the labor market, my forecast is for core PCE inflation to move closer to 2% next year," she said.
She cautioned that falling stock prices, rising bond yields and a stronger dollar have tightened financial conditions, creating possible risks to the economy, which has strengthened this year.
"The benefit of additional policy tightening has to be carefully weighed against its costs for interest-rate-sensitive sectors," Bowman said. "Time will help us learn more about the durability of momentum in AI-related demand and the evolution of geopolitical risks, both of which could be critical in the months ahead for setting our policy stance."
(Reporting by Ann Saphir; Editing by Nia Williams)