Federal Reserve Governor Michelle Bowman: Trade uncertainty makes interest rate cuts more urgent

Stephen Miran, a member of the Federal Reserve, recently stated that the recent trade tensions have increased the uncertainty surrounding economic growth prospects, making it more necessary for policymakers to lower interest rates as soon as possible.

Miran said at an event hosted by CNBC on Wednesday:

I have always assumed that uncertainty has dissipated, so I have been more optimistic about certain aspects of the economic growth outlook.

However, the downside risks are greater now than they were a week ago, and I believe that as policymakers, we have a responsibility to recognize this and let our policies reflect this change. Trade policy uncertainty has introduced a "new tail risk."

I wouldn't say that I am more inclined to lower rates now than I was a week or a month ago. But as the balance of risks changes, I think we need to more urgently bring policy back to a more neutral level.

Miran had previously indicated his support for a further reduction of the Federal Reserve's benchmark interest rate by 1.25 percentage points by the end of this year. He has repeatedly called for a more accommodative monetary policy. Last month, he opposed the decision to only cut rates by 25 basis points, arguing for a 50 basis point cut. This stands in stark contrast to most Federal Reserve officials: according to the latest median forecast from the 19 Federal Reserve policymakers, there will be two more cuts of 25 basis points each in 2025.

Miran stated on Wednesday that policy has become more restrictive than many believe, and that two more rate cuts this year "sound realistic." He also mentioned that there is no need to cut rates by more than 50 basis points.

On Tuesday, Federal Reserve Chairman Jerome Powell reinforced market expectations that there will be a second consecutive 25 basis point rate cut at the upcoming October FOMC meeting later this month. Although inflation remains above the Federal Reserve's 2% target, concerns about slowing job growth and rising unemployment risks may be the main factors driving this decision.

Miran expects substantial disinflation to occur over the next year, with a significant disinflationary trend in the housing market on the horizon. He believes that lower levels of immigration may not exert wage pressure.

Miran also stated that it is unclear what benefits continuing to reduce the balance sheet would bring