– Warns Against Signaling ‘Pause’
By Steven K. Beckner
(MaceNews) – A number of Federal Reserve officials have expressed hesitancy, if not outright opposition, about cutting interest rates further in recent days, but Vice Chairman for Supervision Michelle Bowman emphatically renewed her support for additional rate cuts Friday.
Bowman joined Governor Stephen Miran in supporting more cuts in the federal funds rate, though not quite as zealously, in comments to the New England Economic Forum, Foxborough, Massachusetts.
“With inflation on a sustained trajectory toward 2% and signs of fragility in the labor market, my view is that we should continue to focus on risks to our employment mandate and preemptively stabilize and support labor market conditions,” she declared.
Bowman did not explicitly advocate another rate cuts at the Jan. 27-28 meeting of the Fed’s rate-setting Federal Open Market Committee, but appeared to lean strongly in that direction by saying, “Absent a clear and sustained improvement in labor market conditions, we should remain ready to adjust policy to bring it closer to neutral.”
She also cautioned against signaling a “pause” in rate cuts.
Her remarks come two days after Miran reiterated his supported “continued easing of restrictive monetary policy.”
Meanwhile, other officials have expressed reluctance to ease monetary policy further in the near-term, if at all.
Most recently, on Thursday, Kansas City Federal Reserve Bank President Jeff Schmid said he “sees little reason at this point to further lower the policy rate, though of course, I will be watching the data closely for signs that growth is losing momentum or that the labor market is weakening more substantially.”
Others, such as voting Philadelphia Fed President Anna Paulson, have merely indicated they want to pause easing until there is greater “clarity” on the economic outlook.
The FOMC cut the federal funds rate by 25 basis points for a third straight meeting on Dec. 10, bringing the policy rate down to a target range of 3.5% to 3.75% (a median 3.6%). Including the 100 basis points of cuts in the fourth quarter of 2024, the FOMC has cut the funds rate by a total 175 basis points.
Chairman Jerome Powell appeared to signal a pause by saying that the Fed was now “well-positioned” to “wait and see” how the economy evolves before considering additional rate cuts. And he said the Fed is now within the upper range of estimates of funds rate neutrality.
Bowman voted for the Dec. 10 rate cut, while Miran dissented in favor of a 50 basis point move. Two others dissented against any cut at all.
While Bowman is less aggressive than Miran, she made clear Friday she does favor further easing before long.
After being introduced by Boston Fed President Susan Collins, Bowman began by putting greater emphasis on “downside risks” to employment than on “upside risks” to inflation.
“While the (inflation) risks merit close monitoring, I currently view them as less likely to materialize in a sustained way,” she said, as she downplayed tariff impacts on prices.
But on the employment side, she went on, “I continue to see downside risks. Continued softness in hiring, combined with already low hiring rates, means that even a small decline in demand could translate into a larger increase in unemployment. Once firms begin to shift from slowing hiring to reducing head count, labor market conditions could quickly deteriorate.”
Given that assessment of the balance of risks, Bowman outlined her case for more rate reductions without undue delay.
“With inflation on a sustained trajectory toward 2% and signs of fragility in the labor market, my view is that we should continue to focus on risks to our employment mandate and preemptively stabilize and support labor market conditions,” she said.
Bowman said monetary policy needs to be “intentionally proactive and forward looking,” because “placing too much weight on the most recent data can result in an inherently backward-looking assessment of economic conditions.”
“In my view, that approach increases the risk of falling behind the curve and ultimately requiring more abrupt and larger policy adjustments than would otherwise be necessary,” she continued. “Instead, we should rely on forecasts that are informed by a broad set of indicators and by ongoing engagement with businesses and communities across the country.”
Bowman said such an approach is “more likely to capture how the economy will evolve over time. Acting in a timely and measured way, based on how we expect the economy to evolve, can help support employment and price stability while limiting the risk of unnecessary volatility.”
And Bowman said that approach warrants further rate-cutting.
“With inflation pressures easing – after excluding one-off tariff effects – and with the risk that labor market conditions could weaken further, I see policy as moderately restrictive,” she said.
Speaking a week after the Labor Department reported a one-tenth dip in the unemployment coupled with weaker than expected 50,000 December rise in non-farm payrolls and downward revisions to prior months, Bowman warned, “The labor market can appear to be stable right up until it doesn’t.”
“Absent a clear and sustained improvement in labor market conditions, we should remain ready to adjust policy to bring it closer to neutral,” she continued.
In an apparent slap at other officials, Bowman added, “We should also avoid signaling that we will pause without identifying that conditions have changed. Doing so will indicate that we are not attentive or responsive to the recent and expected path of the labor market.”