With support from senior officials of the Federal Reserve, interest rate cuts may occur as early as July! Governor Bowman: The risks in the labor market may be rising

On Monday, Federal Reserve Governor Bowman stated regarding the economy and monetary policy that if inflationary pressures remain controlled, she would support a rate cut as early as July, as the risks in the labor market may rise, and inflation seems to be stabilizing towards the Fed's 2% target:

If inflationary pressures remain controlled, I would support lowering the policy rate at the next meeting to bring it closer to neutral levels and maintain a healthy labor market.

As U.S. government policies, the economy, and financial markets continue to evolve, she will closely monitor economic conditions.

At last week's June meeting, the Federal Reserve maintained the benchmark interest rate in the range of 4.25% to 4.5%, a level generally considered above the neutral rate that neither stimulates nor suppresses economic activity. After the meeting, Fed Chairman Powell reiterated that policymakers could take a patient approach to interest rate adjustments, waiting for more details on President Trump's economic policies, especially changes in trade policy.

Bowman expressed her support for the Fed's June decision. She mentioned that the post-meeting statement reflected a shift in policy stance, with current policy uncertainty having decreased and the focus shifting to potential weakness in the labor market.

Economists were initially concerned that Trump's tariffs would drive up inflation, but currently, the impact of the Trump administration's expanded use of tariffs has not yet appeared in economic data, with the labor market and inflation data remaining strong. Meanwhile, Trump has softened his rhetoric and opened the door to negotiations with major trading partners.

Bowman recently pointed out:

Data shows that tariffs and other policies have not yet had a significant impact on the economy. I believe the impact of tariffs on inflation may be more delayed and less severe than initially expected, especially since many companies have stockpiled inventory in advance. Ongoing progress in trade and tariff negotiations has significantly reduced the risks in the economic environment.

Changes in trade policy may have only a minimal impact on the Fed's preferred inflation indicators.

The Federal Reserve's responsibility is to maintain price stability and achieve maximum employment goals. Bowman noted that due to recent weak consumer spending and signs of weakness in the labor market, the downside risks the Fed faces regarding employment goals may soon become more pronounced. “In my view, it is appropriate to acknowledge that the risk balance has shifted. When considering future policy paths, it is time to think about adjusting the policy rate.”

The next FOMC meeting of the Federal Reserve will be held on July 29-30. According to CME Group's FedWatch tool, traders currently see only a 23% chance of action at this meeting, while the probability of a rate cut in September is about 78%.

After Federal Reserve Governor Bowman's comments on the prospects for rate cuts:

• The S&P 500 index rose 0.57%, hitting a daily high, the Dow Jones increased by 0.42%, and the Nasdaq climbed 0.55%.
• The yield on the U.S. 10-year Treasury bond fell by more than 5.5 basis points, hitting a daily low below 4.32%. The two-year Treasury yield briefly dropped nearly 4 basis points, hitting a daily low, approaching 3.85%, and has continued to decline significantly since 19:35 Beijing time from around 3.92%

"New Federal Reserve News Agency" Commentary

Nick Timiraos from the "New Federal Reserve News Agency" stated that this is the first substantial comment on the economic outlook from Bowman since President Trump appointed her as Vice Chair for Supervision earlier this spring, which was confirmed by the Senate.

Timiraos pointed out that Bowman has been very focused on inflation risks over the past year. She indicated that due to expectations of more idle capacity in the economy this year, tariffs are likely to result in only "small and one-time" price increases.

Second Federal Reserve Official Paves the Way for Rate Cuts

Bowman mentioned that the impact of Trump's tariff policy on prices is likely to be temporary and limited, making her the second Federal Reserve senior official to express a similar view recently, paving the way for potential rate cuts as early as July.

Another Federal Reserve Governor, Waller, also stated in an interview with CNBC last Friday that he believes the Federal Reserve could consider rate cuts in July.

Trump has been pressuring the Federal Reserve to lower interest rates to reduce the financing costs of the ever-expanding U.S. national debt. After the Federal Reserve decided to hold steady last week, Trump has ramped up his criticism of Powell and the Federal Reserve Board.

Trump has stated that he believes the Federal Reserve should cut rates by at least two percentage points. Bowman's remarks did not mention what she believes the extent of the rate cuts should be, while Waller indicated that such aggressive cuts are unnecessary.

Bowman Discusses Regulation

Bowman is the Vice Chair for Supervision at the Federal Reserve. On the same day, she warned that the current leverage ratio regulatory approach has led to unintended consequences in the market. She stated that it is time to re-examine this critical capital buffer mechanism, as there are concerns that this rule restricts banks' trading activities in the $29 trillion U.S. Treasury market. Bowman stated:

The impact of the leverage ratio on bank-affiliated broker-dealers may have broader market implications, including the market volatility observed in Treasury market intermediation activities. Once we identify those unintended consequences that were not considered when formulating the regulatory approach, we must consider re-examining earlier regulatory and policy decisions.

Earlier this month, Bowman outlined an ambitious agenda—from reviewing the capital buffer mechanism known as the "supplementary leverage ratio" to exempting community banks from regulatory requirements aimed at large financial institutions.

According to previous media reports, the Federal Reserve and other regulatory agencies are expected to announce potential modifications to the leverage ratio rules this week, proposing adjustments to the overall ratio rather than excluding specific assets like U.S. Treasuries, as some observers had predicted.

She also indicated that the Federal Reserve will hold a meeting on July 22 to discuss bank capital issues, noting that "simple reforms" could improve the operational resilience of the Treasury market during stress events. Bowman had previously criticized the regulatory agencies' plans requiring the largest U.S. banks to significantly increase their capital to address potential crises.

There is widespread expectation that Bowman will support significant easing of the proposal known as the "Basel III Endgame." This plan, initially announced in 2023, aims to increase capital requirements for large banks by 19%. The Federal Reserve subsequently scaled back in the face of industry opposition