01:12 PM EST, 01/31/2025 (MT Newswires) -- The Federal Reserve should take a "cautious and gradual" approach to adjusting monetary policy amid upside risks to inflation, Governor Michelle Bowman said Friday.

On Wednesday, the central bank's Federal Open Market Committee decided to leave its benchmark lending rate unchanged at 4.25% to 4.50% following three straight cuts, saying that inflation remained "somewhat elevated."

"I continue to prefer a cautious and gradual approach to adjusting policy," Bowman said Friday in remarks prepared for a speech in Portsmouth, New Hampshire. Core inflation -- which excludes the volatile food and energy components -- is still elevated, though it will likely moderate further this year, according to Bowman. "Even with this outlook, I continue to see upside risks to inflation."

The release of pent-up demand following the US presidential election in November could result in stronger economic activity, which could intensify inflationary pressures, she said. Bowman projected the 12-month measure of core personal consumption expenditures inflation at 2.8% for December, which she said would only be slightly below its 3% level at the end of 2023.

Data released Friday by the Bureau of Economic Analysis showed that the Fed's preferred inflation measure was in line with Bowman's prediction.

"Given the current stance of policy, I continue to be concerned that easier financial conditions over the past year may have contributed to the lack of further progress on slowing inflation," Bowman said. "In light of the ongoing strength in the economy and with equity prices substantially higher than a year ago, it seems unlikely that the overall level of interest rates and borrowing costs are exerting meaningful restraint."

Inflation data for the first quarter of this year will be "key" to understanding the inflation path going forward, Bowman said. "I would like to see progress in lowering inflation resume before we make further adjustments to the target range." Bowman said that monetary policy was not on a preset course.

Markets are pricing in an 82% probability that the FOMC will hold interest rates steady in March, according to the CME FedWatch tool.

"Looking ahead to 2025, in my view, the current policy stance also provides the opportunity to review further indicators of economic activity and get clarity on the (Trump) administration's policies and their effects on the economy," Bowman said.

Last week, President Donald Trump pushed for lower interest rates, exerting pressure on the Fed that has emphasized the importance of making policy decisions independently of the White House.