Federal Reserve Officials Signal Growing Support for Interest Rate Cuts
A notable shift is occurring within the Federal Reserve, as some key officials are now openly advocating for lower interest rates, aligning with calls long championed by former President Donald Trump. This marks a potential departure from the central bank’s recent “wait-and-see” approach to monetary policy.
Leading this emerging stance are figures like Fed Vice Chair for Supervision Michelle Bowman and Fed Governor Christopher Waller. Both officials, who were appointed by Trump, have recently voiced support for cutting borrowing costs sooner rather than later.
Why Some Officials See Rate Cuts Now
Speaking at Georgetown University, Vice Chair Bowman articulated a clear position: it’s “time to consider adjusting the policy rate.” She specifically stated she would support lowering rates as soon as the next Federal Open Market Committee (FOMC) meeting if inflation pressures remain contained. Her rationale centers on bringing the policy rate closer to a “neutral setting” to help sustain the health of the labor market.
Crucially, Bowman also downplayed concerns about the inflationary impact of tariffs, a key point of contention for many economists.
Similarly, Governor Waller, speaking on Friday, described the potential inflation increase from tariffs as likely a “one-off” event, suggesting it wouldn’t lead to sustained price hikes.
This growing willingness to consider cuts contrasts sharply with the Fed’s recent decision earlier this month to keep its benchmark lending rate unchanged for the fourth consecutive time.
Others Warming to the Idea
While Bowman and Waller are the most explicit in their support for swift action, other officials are signaling a similar inclination. Chicago Fed President Austan Goolsbee suggested during a recent discussion that the Fed could lower rates again “if we do not see inflation resulting from these tariff increases,” implying that a lack of tariff-driven inflation would support returning to a path of rate reductions.
For months, the prevailing view at the Fed has been to observe the impact of major policy shifts, such as tariffs and geopolitical events, on the US economy before making further rate adjustments. This cautious posture has been a frequent target of criticism from Trump, who has publicly and relentlessly pressured the central bank and its Chair, Jerome Powell, to lower rates, using strong language to describe Powell.
Addressing Potential Risks: Tariffs and Geopolitics
Even as some officials lean towards cuts, potential economic risks persist, including the impact of tariffs and rising tensions in the Middle East, which could affect global energy prices.
Bowman acknowledged the possibility of the Israel-Iran conflict leading to higher commodity prices and the lingering potential of the trade war pushing up prices. However, she suggested that businesses might lack the leverage to pass these costs onto consumers due to price sensitivity, especially among low-income consumers, and currently stable supply chains.
Fed Chair Jerome Powell has also expressed the view that potential energy price spikes from the Middle East conflict are likely to be short-lived, noting the US economy’s reduced dependence on foreign oil compared to the 1970s.
Economists generally agree that the economic fallout of the Middle East conflict hinges significantly on its scale. While a widespread regional war could severely contract the US economy, a contained scenario would likely result in only a minor contraction.
Despite these potential headwinds, the statements from officials like Bowman and Waller indicate that the Fed’s previously solid “wait-and-see” position is beginning to show cracks, opening the door for potential rate adjustments in the near future.
