Michael S. Derby
NEW YORK (Reuters) – Associate Vice-Chair of Superintendent Michelle Bowman, who recently tapped as overseeing the top US central bank, said the time is approaching to cut interest rates as risks to the job market could rise.
“It’s time to consider adjusting the policy rate,” Bowman told a rally in Prague, the Czech Republic. The change in the authorities was unexpected as she appeared skeptical of the need to ease monetary policy in recent months.
Bowman said inflation appears to be on a sustained path back to 2%, and she said she expects a “minimal impact” on inflation from trade policy. “If inflationary pressures are curtailed, we will support the next meeting as soon as it drops to a neutral environment and maintains a healthy labor market,” Bowman said.
She said that while the job market is still in a good place, she is increasingly concerned about the increased risk to the sector, and that such concerns may need to be more pronounced when thinking about the outlook.
“We should also recognize that given the recent softness of signs of vulnerability in the labour market, the downside risk to our employment delegation could soon become pronounced,” Bowman said.
The central banker’s comments on the outlook for interest rates attracted the attention of financial markets. There, stocks won hops and the futures market strengthened what is unlikely that central banks would cut interest rates when the Federal Open Market Committee held at the end of July.
The futures market expects interest rate cuts to begin at its policy meeting in September.
Bowman’s Devish Take followed later that day by Chicago Federal President Austan Ghoolsby.
Policymakers say that tariffs pose a great deal of risk to the economy in the form of higher inflation and lower growth, which is very difficult for monetary policy to address, but so far some of his strong concerns have not been realized.
“So far, somewhat surprising, the impact of tariffs has not been something people were afraid of,” Ghoolsby said in a comment before the Milwaukee Business Journal’s Middle Age Perspective when the enormous tariffs were announced in the beginning of April.
Policymakers said if the economy can overcome this period of turbulence and uncertainty, the path to interest rate reduction could be reopened.
“If we don’t see any inflation caused by these increased tariffs, in my head I never left what I called the Golden Pass,” which until recently announced a short-term reduction in borrowing costs.
Officials described tariffs as throwing “stains” into the air, and said of the uncertainty, “If the dirt is out of the air, I think we should proceed “with interest rate reductions.”
Steady state
Last week, FOMC fixed its overnight target rate range between 4.25% and 4.5%.
Authorities remained in standby mode amid considerable economic uncertainty created by President Donald Trump’s irregular trade policy.
Most Fed officials are worried that a surge in import taxes could potentially reduce growth. That said, they continue to pencil with two interest rate cuts this year.
Even if Trump withdraws at the most extreme tariff levels, his current overall level of import tax, which is currently facing court challenges, is higher than what Americans have seen for years.
“The rise in tariffs this year is likely to boost prices and strain economic activity,” FED Chairman Jerome Powell said Wednesday following the FOMC meeting.
“It takes time for the tariffs to progress,” Powell pointed out, but added that “we are beginning to see some effects and we hope to see more over the next few months.”
In her speech, Bowman said she supported the Fed’s decision to hold it steady. However, she also said she has arrived more clearly for the outlook and seen far fewer storm clouds ahead for the economy.
Bowman’s openness to reduction rates said in a TV interview Friday that he would consider cutting rates at his July 29-30 meeting. Waller is thought to be widely considered for Powell’s success, with his term ending next year.
Trump repeatedly pressured the Fed to pursue extremely large interest rate cuts, just like those filmed during the crisis amid regular insults on Powell. Observers believe the Fed’s chair needs to match Trump’s desire to make short-term borrowing costs much lower, but doing so could put the credibility of the Fed’s inflationary combat at risk.
A Goldman Sachs economist told the client in a memo on Monday that he “expects the biggest tariff impact on monthly inflation to rise between June and August,” a Goldman Sachs economist told the memo.
Bowman also said he was very optimistic about the outlook for inflation, saying, “The upward pressure from higher tariffs on commodity prices appears to be offset by other factors, and the underlying trend in core (personal consumption expenditure) inflation is much closer to the 2% target than is currently revealed in the data.”
She also said Trump’s policy mix is likely to have a positive impact on the outlook.
“Lower restrictions, lower business taxes and a more friendly business environment are likely to boost supply and significantly offset negative impacts on economic activity and prices,” Bowman said.
(Reporting by Michael S. Derby, Editing by Marguerita Choy)
