Federal Reserve Vice-chair for Supervision Michelle Bowman called for decisive interest rate cuts Friday to address what she described as a "materially more fragile labor market."
Speaking at the Forecasters Club of New York, Bowman emphasized that the Federal Open Market Committee (FOMC) needs to "act decisively and proactively to address decreasing labor market dynamism and emerging signs of fragility."
Bowman warned that the Fed risks "already being behind the curve in addressing deteriorating labor market conditions," adding that if these conditions persist, policy might need adjustment "at a faster pace and to a larger degree going forward."
Addressing inflation concerns related to President Donald Trump’s trade tariffs, Bowman downplayed their long-term impact, noting that when tariffs are excluded, price pressures have "continued to hover not far above our target." Despite inflation remaining above the 2% target, she argued that Fed policy should prioritize "the side of the mandate that is showing signs of deterioration," currently the job market.
Regarding the Fed’s balance sheet, Bowman expressed preference for "the smallest balance sheet possible with reserve balances at a level closer to scarce than ample." She suggested maintaining an all-Treasury portfolio weighted toward shorter-dated holdings, which could be adjusted toward longer-dated bonds if necessary without increasing overall holdings.
Bowman also proposed changes to the Standing Repo Facility (SRF), advocating for "a minimum bid rate higher than the top of the federal funds rate target range" to emphasize its role as a backstop rather than a regular funding source. The SRF is expected to see significant usage next week as market participants manage quarter-end liquidity needs.
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