Editor
In a recent statement, Federal Reserve Governor Michelle Bowman indicated that a decrease in interest rates could happen in July if inflation stays under control. Speaking at a monetary policy forum in Prague, she suggested that the Federal Reserve might lower rates soon, which hints at a possible easing of borrowing costs after a period of stability.
Bowman expressed that if inflation pressures remain manageable, she would support cutting the policy rate at the upcoming meeting on July 29-30. She believes this would help adjust the rate to a more neutral level and maintain strength in the job market.
Her comments signal a shift in viewpoint, as the current low inflation numbers make it more likely that rate cuts, which previously seemed far off, are now being seriously contemplated by the Fed.
Inflation Quiet, Labor Market in Focus
The Federal Reserve has kept interest rates between 4.25% and 4.5% since the beginning of the year, choosing to take a careful approach with mixed economic signals. On one hand, job growth is strong, but inflation has been coming in lower than expected, which has influenced Dr. Bowman’s change in viewpoint.
Dr. Lindsay Park, the chief U.S. economist at Horizon Macro Advisors, mentioned, “It’s hard to ignore the data. We’re seeing core inflation numbers go down while consumer spending remains steady. This gives the Fed some leeway.”
Bowman’s comments align with those of Governor Christopher Waller, who recently suggested that a rate cut could happen “as soon as July,” if inflation remains stable.
Muted Tariff Impact Buoys Dovish Case
One surprising angle in the inflation story is how little impact President Donald Trump’s tariffs have had so far. Initially, many experts worried that increased import taxes would really bump up prices for consumers, but that hasn’t happened yet.
As Fed economist Bowman pointed out, tariffs on inflation might take longer to show effects and could end up being weaker than anticipated. This is partly due to companies stocking up on goods in advance.
Trump has been vocal about wanting the Federal Reserve to lower interest rates significantly — he even suggested a 2 percentage point cut to relieve some government debt. Although the Fed has hesitated to make such drastic changes, there are signs it might be shifting its approach.
After its recent meeting, the Fed acknowledged that it’s now more concerned about potential issues in the job market rather than just inflation, which hints that rate cuts might become a real possibility.
July or September? Markets Still Skeptical
Even though Bowman seems open to taking action, the markets are still being cautious. The CME Group’s FedWatch tool shows that traders think there’s only a 23% chance the Federal Reserve will cut rates in July. Instead, they see a nearly 80% chance that any rate change will come in September.
Daniel McBride, a senior strategist at Apex Trading Group, mentioned that while Bowman might be laying the groundwork, the Fed isn’t going to make a move unless they are fully confident that inflation won’t go back up. He sees July as a possibility, but believes September is more likely.
It’s also worth noting that Bowman didn’t say how much the cut would be, and Waller has argued against making big, sweeping changes. “There’s no need to swing a sledgehammer,” he said last Friday.
Looking Ahead: Eyes on the Data
As we get closer to the July meeting, everyone’s focused on the upcoming inflation and job numbers. The central bank is trying to find a balance between encouraging growth and avoiding rising prices. Bowman mentioned that she’s all about using data to guide decisions. She said, “The economy is changing, and so should our policies.” The timing of any changes will likely rely more on the next few weeks of statistics than on political issues.
