03:59 PM EDT, 04/05/2024 (MT Newswires) -- The Federal Reserve may consider raising rates if progress on inflation stalls or reverses, Governor Michelle Bowman said Friday while hinting at the possibility of landing at a higher federal funds baseline than before the pandemic.

"While it is not my baseline outlook, I continue to see the risk that at a future meeting we may need to increase the policy rate further should progress on inflation stall or even reverse," she said in prepared remarks for a speech in New York.

Bowman vowed to remain cautious in her approach to policy changes and warned against reducing the central bank's policy rate too soon or too quickly, which she said could lead to a rebound in inflation.

Considering potential structural changes in the economy, such as higher investment demand relative to savings, "it is quite possible" that the baseline level of the federal funds rate that's consistent with low inflation will be higher than pre-pandemic levels, Bowman said. In that case, the Fed would eventually make fewer rate cuts than expected, she said.

"Prior to Friday's release of the March employment data, it seemed like Fed officials were allergic to mentioning rate hikes as a possibility if inflation does not make more progress towards the 2% target," Jefferies US Economist Thomas Simons said Friday. "Bowman has been the hawkish outlier for a while now, but the March employment data should begin a new discussion among policymakers about the next steps."

The US economy added a stronger-than-expected 303,000 jobs in March on top of accelerating wage growth sequentially, the Bureau of Labor Statistics reported Friday.

Dallas Fed President Lorie Logan said Friday it's likely "much too soon to think" about easing monetary policy amid potential upside inflation risks. "I will need to see more of the uncertainty resolved about which economic path we're on."

Richmond Fed President Tom Barkin said Thursday that policymakers likely have time for "the clouds to clear" before starting the process of easing monetary policy. Macro data so far this year have been "a little less encouraging," Barkin said, adding that it is likely "smart" for the Fed to take its time before moving to cut interest rates. On Wednesday, Fed Chair Jerome Powell said most policymakers expected that it would be appropriate to start reducing interest rates at some point in 2024, though more evidence was needed that inflation is easing.

"Irrespective of whether Fed officials start talking about more rate hikes, the data certainly should dissuade them from talking about starting up a cycle of rate cuts," Simons said Friday.

Markets widely expect the FOMC to keep its policy rate unchanged at 5.25% to 5.50% on May 1, according to the CME FedWatch Tool. For the June meeting, there's now a 46% chance the Fed will cut interest rates by 25 basis points, down from 59% on Thursday.