Fed's high-ranking official asserts disheartening employment figures support case for three interest rate decreases
Fed Vice Chair Advocates for Three Rate Cuts in 2025 Amid Economic Uncertainty
Michelle Bowman, Vice Chair for Supervision at the Federal Reserve, has advocated for three quarter-point interest rate cuts in 2025, despite the Federal Open Market Committee’s (FOMC) decision to keep rates unchanged at 4.25% to 4.5% as of July 2025.
Bowman's stance is grounded in her assessment of signs of fragility in the labor market and an economic environment that appears to be shifting, with slowing growth and a less dynamic labor market. She sees it as prudent to begin gradually moving from a moderately restrictive policy stance toward a more neutral setting to proactively safeguard against further weakening in economic activity and labor market conditions.
Although inflation remains above the Fed’s 2% target, Bowman notes that inflation has moved considerably closer to this target excluding temporary tariff-related effects. She believes that cutting the benchmark federal funds rate would stimulate the economy by lowering borrowing costs, which may help boost employment.
However, a cut in interest rates could potentially threaten to push inflation higher. This concern is heightened by the fear that Trump's tariffs could lead to "stagflation," a scenario where the economy stagnates while inflation is high. The Fed has no effective tool to address "stagflation."
The U.S. jobs report from last week showed a significant decrease in hiring compared to expectations. Inflation has been stubbornly remaining above the Fed's 2% target despite coming down substantially since hitting a peak after the pandemic. Bowman is getting more confident that Trump's tariffs will not present a persistent shock to inflation.
The Fed's next move regarding interest rates will likely be influenced by how President Trump's tariffs are affecting inflation. The Fed Chair, Jerome Powell, wants to wait for more data about how President Trump's tariffs are affecting inflation before making the next move.
Expectations on Wall Street suggest the Fed will cut interest rates at its next meeting in September due to the U.S. jobs report falling significantly below economists' expectations. However, at the Fed's last meeting, nine other Fed officials voted to keep rates steady, with Bowman voting in favor of a cut.
In a recent statement at a bankers' conference in Colorado, Bowman stated that the latest labor market data reinforce her view that the Fed should cut interest rates three times this year. Trump has been vocal about wanting lower interest rates and has personally criticized Fed Chair Jerome Powell. Trump has the opportunity to appoint another member to the Fed's board of governors following a recent resignation.
In such a scenario, the Fed may have to prioritize either the job market or inflation. Bowman's advocacy for rate cuts aims to support growth and employment, while still keeping inflation considerations in view. This stance differs from many other Fed members who prefer to maintain current rates for the time being. The Fed has only three meetings left on the schedule in 2025.
- Amidst political tension and economic uncertainty, the Fed's stance on interest rates could be influenced by President Trump's tariffs, as Michelle Bowman's recent advocacy for three rate cuts in 2025 suggests.
- As the jobs market shows signs of fragility and growth slows, Seattle's business community is closely monitoring the Fed's decision, with many Aztec Enterprises employees hoping for job security with lower interest rates.
- The financial news outlets are discussing the potential impact of the Fed's rate cuts on the overall economy, with some analysts arguing that lower borrowing costs could stimulate business growth and create more jobs.
- In the realm of politics and economics, the debate over the Fed's rate cuts continues, with some critics warning that a cut could push inflation higher, potentially leading to "stagflation."
