Fed should be ready to cut rates again amid job market risks, Bowman says

• Bowman warned the job market is 'increasingly fragile' and could deteriorate quickly, meaning the Fed should avoid signaling a pause in rate cuts and remain ready to adjust policy toward neutral
• Fed officials currently project only one quarter-point rate cut for 2026, with most policymakers expressing no urgency as inflation remains above the 2% target
• The Fed faces pressure from President Trump to lower rates, with Trump expected to soon announce his choice to replace Fed Chair Jerome Powell whose term ends in May

Fed's Bowman Advocates Rate Cut Readiness Amid Labor Market Concerns

Federal Reserve Vice Chair for Supervision Michelle Bowman stated Friday that the U.S. central bank should remain prepared to cut interest rates again due to fragility in the labor market. Speaking at the New England Economic Forum in Foxborough, Massachusetts, Bowman emphasized avoiding signals of a rate-cut pause without clear improvement in employment conditions.

Key Policy Positions:

• Bowman described current monetary policy as "moderately restrictive" and called for flexibility in adjusting rates toward neutral
• She warned the job market, currently near full employment, "has become increasingly more fragile and could continue to deteriorate in the coming months"
• Inflation is expected to retreat to the Fed's 2% target as trade tariff impacts diminish

Recent Fed Actions:

The Fed reduced its benchmark rate by 0.75 percentage points during late 2025, bringing it to the 3.50%-3.75% range. At the December 9-10 meeting, officials projected just one quarter-point cut for 2026. Other Fed officials have signaled no urgency to act further, awaiting confirmation that inflation above the 2% target will moderate.

Political Context:

The Fed faces pressure from President Trump to lower rates more aggressively. Trump must nominate a successor to Fed Chair Jerome Powell, whose term expires in May. Tensions escalated recently after the administration launched a criminal investigation into the Fed over renovation costs at its headquarters, which Powell characterized as an attack on the Fed's independence in rate-setting.

Market Implications:

Bowman's dovish stance contrasts with recent Fed commentary suggesting patience on rate cuts, potentially signaling internal disagreement on policy trajectory amid uncertain labor market conditions and political pressure.