Governor of the Federal Reserve upholds stance for three interest rate reductions by the year 2025
Federal Reserve Governor Michelle Bowman Advocates for Rate Cuts to Support Economy
Federal Reserve Governor Michelle Bowman dissented from the FOMC decision in July 2025, advocating for a more accommodative monetary policy stance. Bowman's dissent was based on her assessment of signs of fragility in labor market conditions and the need to prevent further deterioration.
- Labor Market Fragility
Bowman observed signs of weakness in the labor market, which she believed necessitated proactive action. Lowering interest rates would likely boost employment by encouraging businesses to expand their payrolls with lower borrowing costs. Despite the signs of weakness, the labor market "appears to remain near estimates of full employment." However, the July jobs report was weaker than expected, with 73,000 jobs added, well below the estimated 110,000. Employment in May and June was revised downward by 258,000 jobs.
- Slowing Economic Growth
Bowman also noted that economic growth had slowed significantly during the year. She argued that cutting rates would help mitigate the risk of further economic weakening and support overall economic stability.
- Inflation Close to Target
Inflation has moved closer to the Fed's 2% target, excluding temporary effects from tariffs. This suggests that the pressure to keep rates high to combat inflation is diminishing, making a rate cut more feasible.
Bowman advocated for three rate cuts by the end of 2025, reflecting her belief that a gradual shift towards a neutral monetary policy stance was necessary to support both economic growth and labor market stability.
Fed policymakers will get two inflation reports and another employment report ahead of the next FOMC meeting in mid-September. Despite Bowman's advocacy, she did not mention any specific plans for a rate cut at the upcoming FOMC meetings.
Bowman's dissent was not alone, as her colleague, Fed Governor Christopher Waller, also dissented from the FOMC decision to leave the central bank's benchmark federal funds rate unchanged. This marked the first dissent by two FOMC members in favor of a rate cut since 1993.
Market expectations suggest that the Fed will cut rates this year, with a substantial probability. However, Bowman continues to project three interest rate cuts before the end of 2025, emphasizing that monetary policy isn't on a predetermined path and could evolve as economic conditions change. Bowman remains cautious about taking too much signal from data releases and sees the latest news on economic growth, the labor market, and inflation as consistent with greater risks to the employment side of the Fed's dual mandate. She suggests a proactive approach in moving policy closer to neutral, from its current moderately restrictive stance, to avoid a further unnecessary erosion in labor market conditions.
- Federal Reserve Governor Michelle Bowman advocates for a gradual shift towards a neutral monetary policy stance, proposing three interest rate cuts by the end of 2025.
- The slowing economic growth, observed by Bowman, signifies the need for rate cuts to help mitigate the risk of further economic weakening and support overall economic stability.
- The inflation rate, excluding temporary effects from tariffs, is approaching the Federal Reserve's 2% target, reducing the pressure to keep rates high to combat inflation.
- Lowering interest rates, as suggested by Bowman, could boost employment, encouraging businesses to expand their payrolls with lower borrowing costs, counteracting signs of weakness in the labor market.
