Key Takeaways
- Federal Reserve Vice Chair for Supervision Michelle Bowman reiterated her forecast for three interest-rate cuts this year, citing recent weak job data and a significant softening in labor demand.
- Bowman expressed concerns that delayed action by the Fed risks further labor market erosion, suggesting the need for a potentially larger rate cut if conditions worsen.
- She believes that core Personal Consumption Expenditures (PCE) inflation is "much closer" to the Fed's 2% target than current data indicates, and is increasingly confident that tariffs will not lead to prolonged inflation.
- The housing market is experiencing its weakest demand since the financial crisis, according to Bowman.
- Bowman anticipates that deregulation, lower taxes, and a business-friendly environment will likely offset any negative economic or price impacts from tariffs.
Federal Reserve Vice Chair for Supervision Michelle Bowman has strongly advocated for interest rate cuts, reiterating her forecast for three rate reductions this year, a view reinforced by the latest job market data. Speaking at the Kansas Bankers Association 2025 CEO & Senior Management Summit, Bowman highlighted a significant softening in labor demand, which she believes will lead to a sharp slowdown in payroll growth. She emphasized that delaying action on rate cuts risks further deterioration in the labor market and a broader slowing of economic growth, potentially necessitating a larger policy correction in the future.
Bowman was one of two Fed governors to dissent at the Federal Open Market Committee's (FOMC) recent meeting, where the majority voted to hold the policy rate steady. She argued that a proactive approach to gradually moving the moderately restrictive policy stance toward a neutral setting would help maintain the labor market near full employment. Payroll employment growth slowed sharply to only 35,000 jobs per month over the three months ending in July, a pace well below that seen earlier in the year and reflecting a significant weakening in labor demand. This slowdown partly stems from substantial downward revisions to payroll employment in May and June. The employment-to-population ratio has also dropped significantly this year, indicating more softening than implied by the unemployment rate alone.
On inflation, Bowman sees core PCE inflation as being "much closer" to the Fed's 2% target than current official readings suggest, particularly when excluding temporary effects from tariffs. Despite increased risks to inflation, she expressed greater confidence that tariffs will not result in prolonged price pressures. Bowman believes that policies such as deregulation, lower taxes, and a generally business-friendly environment are likely to offset any economic drag or price impact from import levies.
The housing market is another area of concern for Bowman, who noted that housing demand appears to be the weakest since the financial crisis. This weakness contributes to her assessment that upside risks to price stability have diminished.
In her role as Vice Chair for Supervision, Bowman also addressed the regulatory framework for local banks. She suggested examining adjustments to the community bank leverage ratio and announced that the Federal Reserve will host a Community Banking Conference on October 9th. These discussions aim to review and potentially reform capital requirements and other regulatory aspects impacting community banks.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.