Federal Reserve governor Michelle Bowman said Saturday that she is looking at three interest rate cuts this year given concerns about the strength of the job market and the overall US economy.
Bowman said she sees a risk that further delays in cutting rates could “result in a deterioration in labor market conditions and a further slowing in economic growth.”
Bowman voted against the Fed’s decision to keep interest rates unchanged last month, preferring the central bank to lower its benchmark interest rate by 0.25%.
“A proactive approach in moving policy closer to neutral, from its current moderately restrictive stance, would help avoid a further unnecessary erosion in labor market conditions and reduce the chance that the Committee will need to implement a larger policy correction should the labor market deteriorate further,” Bowman said in a speech in Colorado.
Fed Governor Chris Waller joined Bowman in voting against the Fed decision on July 31. In recent days, San Francisco Fed president Mary Daly and Minneapolis Fed president Neel Kashkari have also made comments that set the table for cutting rates as soon as next month, citing concerns over a weakening job market.
Data from the CME Group at the end of the week showed investors placing a nearly 90% chance on the Fed lowering the target range for its benchmark interest rate to 4%-4.25% from 4.25%-4.5% at its September meeting. The next time investors expect to hear from Fed Chair Jerome Powell is on Aug. 22 at the Fed’s annual Jackson Hole Symposium.
Bowman noted job growth has slowed sharply to just 35,000 new jobs added to the economy per month over the past three months, indicating a “significant softening” in demand for labor. If demand in the economy continues to weaken, Bowman is concerned businesses may begin to accelerate layoffs.
At the same time, Bowman said that she believes increases in prices from tariffs are likely to have a one-time effect, an impact the central bank can look through.
“Because changes in monetary policy take time to work their way through the economy, it is appropriate to look through temporarily elevated inflation readings and therefore remove some policy restraint to avoid weakening in the labor market,” Bowman said.
Bowman also noted that the government’s monthly jobs data have become difficult to interpret, reflecting declining survey response rates and changing dynamics around immigration and net business creation.
“I remain cautious about taking too much signal from data releases, but I see the latest news on economic growth, the labor market, and inflation as consistent with greater risks to the employment side of our dual mandate,” she said.
Bowman’s comments cap a busy week for the Federal Reserve that also saw President Trump announce plans to nominate the current chair of the president’s Council of Economic Advisers, Stephen Miran, to the Fed’s Board of Governors. Miran is set to complete the term left vacant by Adriana Kugler, a Biden appointee, who resigned from the Fed Board on Friday.
US CPI data due Tuesday will help decide if the Fed will cut rates at its September meeting, following weak jobs numbers that sparked worries about a slowing economy.
“Tomorrow’s US inflation report will garner the most macro attention and should help to pave the way for a Fed rate cut in September,” Commerzbank strategists wrote in a note, adding that US tariffs were having a limited impact on prices so far.
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