Bowman, Fed Vice Chair: "Tariff-Driven Inflation Is Limited"
Supports July Rate Cut Following Waller, Fed Governor
Michelle Bowman, Vice Chair of the US Federal Reserve (Fed), stated on June 23 (local time) that she could support an interest rate cut as early as July if inflation remains subdued. Following Christopher Waller, a Fed Governor, Bowman?who had also been considered to have a hawkish (monetary tightening) stance?has now joined other US monetary policymakers in expressing support for a possible rate cut in July.
At an event held in Prague, Czech Republic, Bowman said, "The impact of tariffs on inflation is likely to take longer to materialize, be more delayed, and be smaller than initially expected," adding that she could support a rate cut as early as next month.
She explained, "Many companies have secured inventories in advance," and added, "Given the direction ahead, now is the time to consider adjusting the policy rate."
Regarding the current inflation situation, Bowman assessed, "The upward pressure on goods prices caused by high tariffs is being offset by other factors," and stated, "The underlying trend in core personal consumption expenditures (PCE) inflation appears to be much closer to the Fed's 2% inflation target than current indicators suggest."
She also said, "If subdued inflationary pressures persist, I will support adjusting the policy rate closer to a neutral level and cutting rates as soon as possible at the next meeting to maintain a healthy labor market," adding, "In the meantime, I will closely monitor the administration's policies, economic conditions, and financial markets."
Until as recently as February this year, Bowman had maintained a hawkish stance in public, warning of the risks of a rebound in inflation. However, she has shown a favorable view toward easing financial regulations. Previously serving as a Fed Governor, she was officially appointed as Vice Chair for Supervision earlier this month after being nominated by President Donald Trump.
Earlier, Waller, who is considered a moderate hawk, also stated in an interview with CNBC on June 20 that the Fed should consider a rate cut in July. Wall Street is paying particular attention to Waller's public remarks. When he withdrew his previously hawkish stance in November 2023, during a period of rate hikes, the market interpreted this as a signal of a shift in monetary policy and reacted strongly.
With both Waller and now Bowman mentioning the possibility of a July rate cut within the Fed, US Treasury yields have declined. The yield on the two-year US Treasury note, which is sensitive to monetary policy, fell by 6 basis points (1bp = 0.01 percentage points) from the previous trading day to 3.84%. The yield on the benchmark 10-year US Treasury note dropped by 4 basis points from the previous day to 4.33%.
As signs of a possible shift in the Fed's monetary policy stance begin to emerge internally, market expectations for a rate cut in July or September have risen further. According to the CME FedWatch Tool, the federal funds futures market on this day reflected a 22.7% probability that the Fed will cut rates by 0.25 percentage points in July, up from 14.5% the previous day. The probability of a rate cut of at least 0.25 percentage points in September rose from 69.6% to 81.6%.
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