Federal Reserve Governor Michelle Bowman has signaled her openness to supporting an interest rate cut at the upcoming Federal Open Market Committee (FOMC) meeting scheduled for late July. Her support hinges primarily on one crucial condition: that inflation pressures remain subdued.
Speaking from Prague on Monday, Bowman articulated her position, stating, “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.” This sentiment echoes recent comments from fellow Fed Governor Christopher Waller, suggesting a potential consensus forming within the central bank regarding the possibility of easing monetary policy sooner than some analysts anticipated.
A key factor influencing Bowman’s view is her assessment of the impact of tariffs on the U.S. economy. While some economists have voiced concerns that import duties could fuel inflation, Bowman expressed a belief that their inflationary effect is likely to be both temporary and muted. She elaborated that any price impact from tariffs may take longer to materialize, be delayed, and ultimately prove smaller than initially forecast, partly because many businesses strategically “frontloaded their stocks of inventories” in anticipation. This perspective suggests Bowman sees the tariff situation as less of an obstacle to lowering rates than previously feared.
The discussion around potential rate cuts comes amid ongoing pressure from President Donald Trump, who has publicly called for the Federal Reserve to reduce borrowing costs, citing reasons such as managing the national debt’s financing expenses. However, the FOMC opted to hold its key interest rate steady at the target range of 4.25%-4.5% at its most recent meeting. Bowman supported the shift in the post-meeting statement’s focus, noting diminished policy uncertainty and an increasing emphasis on potential labor market weakness.
While two Fed governors have now voiced potential support for a July move, current market expectations remain cautious. According to the CME Group’s FedWatch gauge, which tracks futures market pricing, traders assign only a 23% probability to a rate cut occurring at the July 29-30 FOMC meeting. A cut in September is seen as significantly more likely, with a probability around 78%.
Adding to the economic backdrop the Fed is monitoring are recent data points, including a worse-than-expected 0.9% fall in retail sales in May, alongside a rebound in consumer sentiment. These indicators paint a mixed picture of the economy’s health.
Regarding the magnitude of any potential rate reduction, President Trump has advocated for a significant cut of at least 2 percentage points. However, Governor Bowman did not specify the size of a cut she would favor, and Governor Waller has indicated that such dramatic reductions are unnecessary. The path forward for interest rates will continue to depend on incoming data and the Fed’s evolving assessment of inflation and labor market conditions.
