Fed’s Bowman backs three rate cuts in 2025, warns of labour market fragility

US Federal Reserve Governor Michelle Bowman has called for three interest-rate cuts this year, signalling growing concern inside the central bank over weakening job growth and softening demand. Speaking at the Kansas Bankers Association in Colorado Springs on Saturday, Bowman, a 2018 Trump appointee said recent weak labour-market data had reinforced her view that policy easing was now necessary. According to Bloomberg, she urged the Fed to start cutting at its next meeting in September to “avoid unnecessary erosion” in employment and prevent a larger policy correction later.

From rate-hold supporter to early cut advocate

The Fed has kept interest rates unchanged through the first half of 2025, a stance Bowman backed until June. But in July, she broke ranks alongside fellow Governor Christopher Waller, voting for a quarter-point cut. Her shift comes as the US job market shows signs of strain. Data from the Bureau of Labor Statistics showed employers added just 73,000 jobs in July, well below expectations, with prior months’ gains revised down by nearly 260,000.

The unemployment rate also ticked up to 4.2 per cent from 4.1 per cent in June. Three other Fed policymakers, San Francisco’s Mary Daly, Minneapolis’ Neel Kashkari and Governor Lisa Cook have also voiced concerns about the cooling labour market in recent days, hinting they may support a September cut.

Tariffs unlikely to stoke lasting inflation

Bowman also addressed the inflation outlook, saying tariff-driven price rises, a major factor under President Donald Trump’s trade policies were unlikely to cause persistent inflation pressures. “With underlying inflation on a sustained trajectory toward 2 per cent, softness in aggregate demand and signs of fragility in the labour market, I think we should focus on risks to our employment mandate,” she said, as quoted by Bloomberg.

Her comments reflect a broader view among some policymakers that the Fed can ease rates without jeopardising price stability, particularly if tariffs don’t trigger lasting inflationary effects.

Spotlight on community banks

Bowman used part of her remarks to announce an October 9 conference on community banking, aimed at exploring reforms to the capital framework for smaller lenders. She has long argued that community banks, which support local economies but have been losing market share to larger institutions, face unique challenges that merit tailored regulation. She pointed to possible changes to the community bank leverage ratio, a simpler capital requirement designed as an alternative to risk-based measures.

Bowman, a former community banker herself, said she wants to make the ratio more attractive so more lenders adopt it, and to reshape supervision to protect smaller banks from rules designed for Wall Street giants. The Fed already held a separate conference in July to discuss capital requirements for the biggest US banks, with regulators signalling a willingness to ease certain rules, including the enhanced supplementary leverage ratio and adjust stress testing frameworks.

Economic and policy stakes

Bowman’s push for rate cuts puts her at the centre of the Fed’s growing policy debate ahead of September. With job growth slowing, unemployment edging higher, and inflation nearing the Fed’s 2 per cent target, the risk calculus inside the central bank appears to be shifting from inflation control to employment protection.

If Bowman’s view gains traction, the Fed could deliver its first rate cut in September, the first step in what she hopes will be a three-cut cycle to stabilise the economy before labour market weakness becomes entrenched.

(With inputs from the agencies)