Job report recent findings suggest 'vulnerability indicators': Insight from Federal Reserve officer
In a recent turn of events, Federal Reserve Vice Chair for Supervision Michelle Bowman has expressed her support for a gradual reduction in interest rates. This stance was evident during the July 30, 2025, Federal Open Market Committee (FOMC) meeting, where she dissented, favouring a 25 basis points rate reduction over maintaining the status quo.
Bowman's reasoning stems from her observation that inflation has moved significantly closer to the Federal Reserve's 2 percent target, excluding tariff effects. She also notes that while the labor market remains near full employment, it exhibits signs of slowing dynamism. By initiating interest rate cuts, Bowman believes the Fed can proactively hedge against further economic weakening and potential labor market damage amid slowing growth this year.
However, Bowman also acknowledges that the labor market data presents some challenges and risks. She advises caution in interpreting recent data due to complexities such as declining survey response rates and changing immigration patterns. Her outlook signals concern about rising risks to employment, emphasising the need for accurate real-time data to guide monetary policy.
Bowman's call for interest rate cuts comes amidst growing divisions among Fed policymakers about when the independent central bank should begin slashing rates again. This decision has been a subject of controversy, with President Donald Trump frequently criticising Fed Chair Jerome Powell for decisions to keep rates unchanged.
In addition, Trump has been accused of manipulating data for political reasons, an allegation levelled at commissioner McEntarfer without evidence. On the day that the Labor Department released July's jobs report, Trump ordered the firing of commissioner Erika McEntarfer. The July jobs report showed cracks in the market, with employment in May and June revised down significantly by 258,000 jobs.
Despite these challenges, Bowman remains optimistic about the economy. She believes that price increases from President Trump's tariffs this year will likely represent a one-time effect, and inflation is expected to return to the Fed's two percent target after the tariff effects dissipate.
Bowman also believes that the Fed's rate-setting committee may not need to make a larger cut if the jobs market worsens further due to the lower lending rate. This proactive approach, she argues, can help avoid a further unnecessary erosion in labor market conditions.
The central bank has come under intense pressure from Trump recently. However, Bowman, who was nominated by Trump in 2018 to the Fed's board, has taken aim at government data over its declining survey response rates and other issues. She suggests that it is appropriate to look through temporarily elevated inflation readings and remove some policy restraint to avoid weakening in the labor market.
In conclusion, Bowman's advocacy for a gradual interest rate cut underscores a shift in the Fed's monetary policy strategy. As the economy continues to show signs of slowing growth, the Fed will likely need to navigate these challenging times with caution and a proactive approach.
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