Fed’s Michelle Bowman favours three interest-rate cuts this year

Michelle Bowman, vice chair for supervision at the US Federal Reserve, speaks during the Federal Reserve Integrated Review of the Capital Framework for Large Banks Conference in Washington, DC

Federal Reserve Governor Michelle Bowman delivered two key pieces of news on Saturday, saying she favors three interest-rate cuts this year and will host an Oct. 9 community bank conference.

Bowman said in prepared remarks she supports multiple interest-rate cuts and that her view had been reinforced by recent weak labour-market data. The Fed’s policymaking committee has held rates steady this year, which Bowman supported through June. But in July she dissented alongside Governor Christopher Waller, in favor of a quarter-percentage-point cut.

On Saturday, she urged her fellow policymakers to begin cutting at the Fed’s next meeting in September.

Such a move, she said, “would help avoid a further unnecessary erosion in labor market conditions and reduce the chance that the committee will need to implement a larger policy correction should the labor market deteriorate further.”

Bowman, who was appointed to the Fed in 2018 by President Donald Trump, also reiterated her view that tariff-driven price hikes were unlikely to move inflation up in a persistent way.

“As I gain even greater confidence that tariffs will not present a persistent shock to inflation, I see that upside risks to price stability have diminished,” she said in prepared remarks for the Kansas Bankers Association in Colorado Springs. “With underlying inflation on a sustained trajectory toward 2%, softness in aggregate demand and signs of fragility in the labor market, I think that we should focus on risks to our employment mandate.”

Bowman and Waller may be joined by others supporting a cut in September.

Three other policymakers — San Francisco Fed President Mary Daly, Minneapolis’ Neel Kashkari and Governor Lisa Cook — all expressed concerns this past week after new data pointed to a sharp cooling in the labor market.

Employers added a lower-than-expected 73,000 jobs in July, and gains in the prior two months were revised down by nearly 260,000, according to the Bureau of Labor Statistics. The unemployment rate ticked up to 4.2% from 4.1% in June.

Community Bank Conference

In a section of the prepared remarks focused on community banking, Bowman said the Oct. 9 conference will look at potential reforms to the capital framework for those lenders. She has previously expressed concerns about the competitive landscape for community banks, which have long been losing market share to bigger lenders.

“Community banks are the cornerstone of the banking and financial system, supporting local communities and their customers,” said Bowman, the Fed’s top bank cop. “Too often, these banks have been overlooked, with too little attention paid to longstanding and emerging issues and industry and consumer concerns.”

She pointed to potential modifications to what’s known as the community bank leverage ratio, an optional framework that was designed as an alternative to risk-based capital measures for community banks.

Bowman, a former community banker who worked at Farmers & Drovers Bank, is seeking to make the measure more attractive to those lenders so they would adopt it. She also plans to reshape the agency’s supervision framework for community banks in a bid to insulate them from capital requirements crafted for larger, more complex lenders.

The Fed already held a bank capital conference in July that was focused on the rules for Wall Street’s biggest banks. Regulators have been looking to dial back some capital requirements, including a proposal to ease a key rule known as the enhanced supplementary leverage ratio and beginning the process to overhaul stress tests.