Fed Vice Chair Bowman Signals Imminent Rate Cut

Federal Reserve Vice Chair for Supervision Michelle Bowman expressed her growing concerns about labor market risks and decreased worries about inflation, saying the time to cut interest rates is imminent. At a gathering in Prague, Bowman stated that inflation appears to be on a sustained path back to 2%, and she expects "only minimal impact" on inflation from trade policy. She supports lowering the policy rate as soon as the next meeting to bring it closer to its neutral setting and sustain a healthy labor market.

Key Takeaways:

• Bowman's comments on the interest rate outlook caught the attention of financial markets, where stock prices rose and futures markets strengthened the already low odds of a rate cut at the end of July.
• The Fed's decision to hold steady on the interest rate range was supported by Bowman, but she noted that she sees far fewer storm clouds ahead for the economy with more clarity arriving.
• Bowman's openness to cutting rates soon is joined by that of Fed Governor Christopher Waller, who also considers a rate cut at the July 29-30 meeting.
• Bowman sees the job market as still being in a good place, but she is more worried about what lies ahead for the sector, and that's part of what's informing her current monetary policy views.
• The Fed official was also quite sanguine on the inflation outlook, saying that any upward pressure from higher tariffs on goods prices is being offset by other factors.
• Bowman believes Trump's policy mix, including less restrictive regulations, lower business taxes, and a more friendly business environment, will likely boost supply and largely offset any negative effects on economic activity and prices.

Statistics:

• The FOMC left its overnight target-rate range fixed between 4.25% and 4.5%.
• Bowman expects "only minimal impact" on inflation from trade policy.
• The current level of import taxes, which are currently facing a court challenge, is higher than anything Americans have seen in many years.
• Increases in tariffs this year are likely to push up prices and weigh on economic activity, according to Fed Chairman Jerome Powell.
• The Goldman Sachs economist expects the largest tariff effects on monthly inflation to show up from June through August.

Sources:

• Reuters
• President Donald Trump's statement
• Fed Chairman Jerome Powell's comments at the FOMC meeting
• Goldman Sachs economist's note
• Michelle Bowman's speech in Prague
• Christopher Waller's television interview on MSNBC