Bowman urges clear rate-cut path to protect employment

Federal Reserve Vice Chair Michelle Bowman has called for significant cuts to interest rates to stop the problems in the job market from worsening.

During her speech at the Forecasters Club of New York, Bowman mentioned that recent information from reliable sources indicated that the labor market is weakening as inflation, excluding tariffs, stays slightly above its target.

Fed’s Vice Chair calls for the need to help the job market 

Bowman recently analyzed data collected over the last few months and pointed out that it indicated escalating problems in the job market. Concerning these rising issues, she urged the Federal Open Market Committee (FOMC), the Federal Reserve System responsible for creating the nation’s monetary policy to achieve maximum employment and stable prices, to implement bold and proactive measures to address the diminishing activity in the labor market and new signs of weakness.

The Vice Chair cautioned, “We may already be lagging behind in responding to escalating concerns in the labor market.” She further expressed worries that if these issues persist, they might have to change their policies more swiftly and implement substantial adjustments.

In their last meeting in August, the Federal Open Market Committee had reduced its target range for overnight interest rates by 0.25 percentage points to between 4% and 4.25%. Notably, this rate cut was meant to support the job market despite officials raising concerns about inflation remaining above the target.

Following these concerns, one Federal Reserve governor favored a bigger rate cut, but Bowman decided to stick with her colleagues’ opinion to support the 25-basis-point decrease. However, during the meeting in late July, she disagreed with the decision to maintain the rates unchanged, while most officials supported the idea.

Bowman explained her stand, stating that US President Donald Trump’s trade tariffs might result in long-term inflation problems. Based on her argument, price pressures have remained above their target without tariffs, while inflation is still above the 2% target. With this, she urged that Fed policy should pay attention to the part of the mandate that demonstrates weaknesses, which means taking into account effective steps to help the job market.

Supporting her concerns, the CFO Survey, conducted by Duke University in partnership with the Richmond and Atlanta Federal Reserve Banks, reveals that executives attribute roughly one-third of their firms’ price hikes to tariffs.

With inflation currently at 2.9%, removing the tariff impact would bring it closer to 2%, the Federal Reserve’s target rate. The findings also contradict Trump’s repeated claims that there is “no inflation” and that his trade policies are not driving up prices.

Bowman emphasizes the Fed keeping the balance sheet as small as possible

Bowman also addresses the Fed’s ongoing reduction of its bond holdings and points out that she prefers the balance sheet to be kept as small as possible, with reserve balances likely to be limited instead of plentiful.

The official said that getting the balance sheet as low as possible will give the Fed greater freedom to respond to future issues. Bowman said that she favored the Fed’s balance sheet being concentrated in shorter-term assets and that it could tilt its investments toward longer-term bonds if needed without raising the overall size of holdings.

Bowman said she is open to more than merely a gradual runoff of the Fed’s holdings. She stated, “I also look forward to discussing potential sales of our agency mortgage-backed securities (MBS) with the committee.” “Just relying on MBS runoff isn’t going to let us get back to a Treasury-only portfolio in a reasonable period,” she added.

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