Michael S. Derby
5 min read
By Michael S. Derby
NEW YORK (Reuters) -Federal Reserve Vice Chair for Supervision Michelle Bowman, recently tapped by President Trump as the U.S. central bank’s top bank overseer, said Monday the time to cut interest rates is getting nearer as risks to the job market may be on the rise.
“It is time to consider adjusting the policy rate,” Bowman told a gathering held in Prague, Czech Republic. The official's shift was unexpected as she had in recent months appeared skeptical of the need to ease monetary policy.
Bowman said inflation appears to be on a sustained path back to 2% and she said she expects “only minimal impact” on inflation from trade policy. “Should inflation pressures remain contained, I would support lowering the policy rate as soon as our next meeting in order to bring it closer to its neutral setting and to sustain a healthy labor market,” Bowman said.
She noted the job market is still in a good place but that she is also increasingly worried about rising risks to the sector and said that such concerns might need to take more prominence in thinking about the outlook.
“We should also recognize that downside risks to our employment mandate could soon become more salient, given recent softness in spending and signs of fragility in the labor market,” Bowman said.
The central banker's comments on the interest rate outlook caught the attention of financial markets, where stock prices got a hop and futures markets bolstered what are still low odds the central bank will cut rates when the rate-setting Federal Open Market Committee meets at the end of July.
Futures markets still believe rate cuts will start at the September policy meeting.
Bowman's dovish take on monetary policy was followed later in the day by Chicago Fed President Austan Goolsbee.
The policymaker said that while tariffs carry big risks to the economy in the form of higher inflation and lower growth, which are very tricky for monetary policy to address, thus far some of his stronger worries have not been realized.
"Somewhat surprisingly, thus far, the impact of tariffs has not been what people feared" when huge tariffs were announced at the start of April, Goolsbee said in comments before the Milwaukee Business Journal Mid-Year Outlook.
The policymaker said that if the economy can get through this period of turbulence and uncertainty, the path toward rate cuts may open up again.
"If we do not see inflation resulting from these tariff increase, then, in my mind, we never left what I was calling the golden path," and that's a path that until recently heralded cuts in short-term borrowing costs, Goolsbee said.
