Fed’s Bowman Supports July Rate Cut if Inflation Remains Under Control

• Federal Reserve Governor Michelle Bowman supports a potential interest rate cut at the July 29-30, FOMC meeting if inflation remains subdued, aligning with Governor Christopher Waller’s view that a cut could be considered to support the labor market.
• Despite President Trump’s push for a 2-percentage-point rate reduction, Bowman and Waller advocate for a cautious approach, noting the limited inflationary impact of tariffs due to firms’ preemptive inventory stockpiling.
• Market expectations, per the CME Group’s FedWatch gauge, show a 23% chance of a July rate cut and a 78% likelihood for September, reflecting cautious optimism amid stable inflation and evolving trade policies.

Federal Reserve Governor Michelle Bowman has signaled openness to an interest rate cut at the upcoming July 29-30, Federal Open Market Committee (FOMC) meeting, provided inflation remains subdued. In a speech prepared for delivery in Prague, Bowman emphasized that muted inflationary pressures could justify lowering the policy rate to a more neutral level to support a healthy labor market. Her comments align with recent remarks from fellow Governor Christopher Waller, who told CNBC on Friday that he also sees a potential rate cut in July as feasible. This marks a notable shift in tone from two central bankers, reflecting evolving economic conditions and policy considerations.

Bowman’s stance comes in the context of President Donald Trump’s ongoing push for lower interest rates to reduce financing costs on the growing national debt. Trump has advocated for a significant reduction of at least 2 percentage points, though neither Bowman nor Waller endorsed such an aggressive move. Waller, in his CNBC interview, explicitly cautioned against dramatic cuts, suggesting a more measured approach. Despite Trump’s pressure, the FOMC maintained its key interest rate range at 4.25%-4.5% during its most recent meeting, a decision Bowman supported. However, she noted that the post-meeting statement reflected a pivot, with reduced policy uncertainty and a growing focus on potential labor market weaknesses.

A key factor in Bowman’s and Waller’s outlook is the unexpectedly limited impact of Trump’s tariffs on inflation. Economists initially feared that the tariffs would drive up prices, but recent data suggests otherwise. Bowman highlighted that many firms preemptively bolstered inventories, which may have delayed and diminished the tariffs’ effect on consumer prices. She suggested that any inflationary impact is likely to be smaller and more gradual than anticipated. This view is bolstered by Trump’s recent softening of rhetoric and openness to trade negotiations with major partners, which could further mitigate price pressures.

Market expectations, as reflected by the CME Group’s FedWatch gauge, assign a modest 23% probability to a rate cut in July, with a higher 78% likelihood for a cut in September. These probabilities underscore the cautious approach among traders, who are closely monitoring incoming economic data and Fed communications. Bowman stressed that her support for a potential rate adjustment hinges on continued evidence of contained inflation, alongside careful observation of the administration’s policies, broader economic trends, and financial market developments.

The broader economic context supports the case for cautious optimism. Inflation has shown signs of stabilizing, with recent measures indicating minimal disruption from tariffs. The labor market, while still robust, is under increasing scrutiny for signs of softening, prompting the Fed to balance its dual mandate of price stability and maximum employment. Bowman’s remarks suggest a pragmatic approach, acknowledging the need to adapt monetary policy to evolving conditions without committing to premature or oversized rate reductions.

As the July meeting approaches, the Fed’s data-dependent stance will remain critical. Investors and policymakers alike will be watching for further clues on inflation trends, labor market dynamics, and the trajectory of trade policies. For now, Bowman’s and Waller’s comments indicate a growing willingness within the Fed to consider easing monetary policy, but any action will likely be calibrated to avoid destabilizing the economy.

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