This Year, the Fed's Bowman Favors Three Interest Rate Cuts

Federal Reserve Governor Michelle Bowman made headlines over the weekend with two key announcements: she’s advocating for three interest rate cuts this year and will host a community bank conference.

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In prepared remarks, Bowman said recent signs of weakness in the labor market have strengthened her belief that multiple rate cuts are necessary. The Fed’s policy committee has kept interest rates unchanged throughout 2024, a stance Bowman supported until June. However, in July she broke ranks alongside Governor Christopher Waller, favoring a quarter-point reduction.

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On Saturday, Bowman urged policymakers to begin easing rates at the Fed’s September meeting. She argued that a timely cut “would help avoid a further unnecessary erosion in labor market conditions and reduce the chance that the committee will need to implement a larger policy correction should the labor market deteriorate further.”

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Bowman, appointed to the central bank in 2018 by former President Donald Trump, also reaffirmed her belief that tariff-related price increases are unlikely to fuel sustained inflation.

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“As I gain even greater confidence that tariffs will not present a persistent shock to inflation, I see that upside risks to price stability have diminished,” she said during remarks at the Kansas Bankers Association gathering in Colorado Springs.

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“With underlying inflation steadily moving toward 2%, weaker overall demand, and signs of fragility in the labor market, I believe we should focus on risks to our employment mandate.”

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Her position could gain more traction among Fed members. Waller, along with San Francisco Fed President Mary Daly, Minneapolis Fed President Neel Kashkari, and Governor Lisa Cook, expressed concerns last week following data showing a significant labor market slowdown.

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In July, U.S. employers added just 73,000 jobs far below expectations and prior job growth figures for May and June were revised downward by nearly 260,000. The unemployment rate also edged higher, rising to 4.2% from June’s 4.1%, according to the Bureau of Labor Statistics.

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In another part of her speech, Bowman announced that the October 9 conference will center on potential reforms to the capital framework for community banks. She has repeatedly voiced concern about the shrinking market share of these smaller lenders as they face stiff competition from large banks.

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“Community banks are the cornerstone of the banking and financial system, supporting local communities and their customers,” said Bowman, the Fed’s top official overseeing bank regulation. “Too often, these banks have been overlooked, with too little attention paid to longstanding and emerging issues and both industry and consumer concerns.”

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One reform under consideration is modifying the community bank leverage ratio a simplified capital requirement framework designed as an alternative to risk-based capital rules for smaller banks. Bowman, who previously worked at Farmers & Drovers Bank, wants to make this framework more appealing so more community banks will adopt it.

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She is also advocating for changes to the Fed’s supervisory approach to ensure that community banks are not subject to capital requirements meant for larger, more complex financial institutions.

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The October event follows a July conference focused on capital rules for the nation’s biggest banks. Regulators are already weighing potential changes to the banking rulebook, including proposals to relax the enhanced supplementary leverage ratio a key requirement for large institutions and begin revamping the stress-testing process.

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Bowman’s dual focus on interest-rate policy and community bank reform underscores the balancing act facing the Fed: supporting the economy without compromising financial stability, while ensuring that smaller lenders remain competitive in a changing banking landscape.

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