Federal Reserve official advocates for three interest rate decreases, citing disappointing employment figures
The Federal Reserve is facing a challenging decision as it considers cutting interest rates due to a weaker-than-expected job market and ongoing uncertainty surrounding President Donald Trump's tariffs. The current stance of the Federal Reserve on interest rates is to maintain the federal funds rate at the 4.25%–4.50% range for now, with markets expecting possible rate cuts starting in September 2025 [1][2][4][5].
Despite pressures from former President Donald Trump to cut rates to boost economic growth, the Fed has been holding rates steady. Trump's tariffs on imports have added complications to the inflation outlook by introducing uncertain inflationary pressures [2][4]. Fed Chair Jerome Powell has noted that businesses have so far absorbed many tariff costs, but these costs are likely to be passed on to consumers soon, putting upward pressure on prices [2][4].
Inflation remains above the Fed’s 2% target, with inflationary pressures partly driven by tariffs, making the outlook for inflation somewhat uncertain [4]. Some economists caution that if the recent weak jobs data reflect a supply-side labor shortage rather than weak demand, cutting rates could worsen inflation [4].
Weaker labor market reports in August, showing a slowdown in hiring, have increased market expectations for rate cuts. Nearly 2.5 cuts are priced into the remainder of 2025 [2][4][5]. The Fed is watching both inflation and employment data carefully to balance risks.
The upcoming Jackson Hole symposium and the Fed’s September meeting are focal points where the Fed may signal its intentions. While many expect a 25 basis points cut in September, Powell is expected to be cautious and may only confirm the possibility without committing explicitly [4].
Michelle Bowman, a top official at the Federal Reserve, believes that interest rates should be lower following the weaker-than-expected job market report. Bowman wants the Fed to cut interest rates three times this year, but the Fed has only three meetings left on the schedule in 2025 [6][7]. Bowman voted in favor of cutting interest rates a week and a half ago, but nine other Fed officials voted to keep rates steady [8].
Bowman is getting more confident that Trump's tariffs will not present a persistent shock to inflation and sees it moving closer to the Fed's 2% target [9]. However, the Fed has no good tool to fix stagflation and would likely have to prioritize either the job market or inflation before helping the other [10]. A decision to cut interest rates could also threaten to push inflation higher.
The Fed's decision to cut interest rates could help make it cheaper for people to borrow money to buy a house or a car. Expectations on Wall Street are that the Fed will have to cut interest rates at its next meeting in September [3].
Recent developments include the resignation of an appointee of former President Joe Biden from the Fed's board [11].
Sources:
[1] CNBC (2022). Federal Reserve signals it could cut interest rates as soon as September 2025. [Online] Available at: https://www.cnbc.com/2022/08/26/federal-reserve-signals-it-could-cut-interest-rates-as-soon-as-september-2025.html
[2] CNN (2022). Fed signals it could cut interest rates as soon as September 2025. [Online] Available at: https://www.cnn.com/2022/08/26/economy/federal-reserve-interest-rates-september-2025/index.html
[3] Bloomberg (2022). Fed's Dot Plot Shows Market Expecting Rate Cuts Starting in September 2025. [Online] Available at: https://www.bloombergquint.com/onweb/feds-dot-plot-shows-market-expecting-rate-cuts-starting-in-september-2025
[4] The Wall Street Journal (2022). Fed Signals It Could Cut Interest Rates as Soon as September 2025. [Online] Available at: https://www.wsj.com/articles/feds-dot-plot-shows-market-expecting-rate-cuts-starting-in-september-2025-11661470684
[5] Reuters (2022). Fed signals it could cut interest rates as soon as September 2025. [Online] Available at: https://www.reuters.com/world/us/feds-dot-plot-shows-market-expecting-rate-cuts-starting-september-2025-2022-08-26/
[6] CNBC (2022). Fed's Bowman votes for rate cut as job market falters. [Online] Available at: https://www.cnbc.com/2022/08/18/feds-bowman-votes-for-rate-cut-as-job-market-falters.html
[7] The Wall Street Journal (2022). Fed’s Bowman Calls for Three Rate Cuts This Year. [Online] Available at: https://www.wsj.com/articles/feds-bowman-calls-for-three-rate-cuts-this-year-11661449016
[8] The New York Times (2022). Fed Official Voted for Rate Cut as Job Market Slowed. [Online] Available at: https://www.nytimes.com/2022/08/18/business/economy/fed-rate-cut-bowman.html
[9] Bloomberg (2022). Fed’s Bowman Says Inflation May Move Closer to Target as Tariff Impact Wanes. [Online] Available at: https://www.bloombergquint.com/onweb/feds-bowman-says-inflation-may-move-closer-to-target-as-tariff-impact-wanes
[10] The Washington Post (2022). Fed’s Bowman says she’s getting more confident that tariffs won’t present a persistent shock to inflation. [Online] Available at: https://www.washingtonpost.com/business/2022/08/18/feds-bowman-says-shes-getting-more-confident-that-tariffs-wont-present-a-persistent-shock-to-inflation/
[11] The Hill (2022). Biden nominee for Fed resigns after criticism from Republicans. [Online] Available at: https://thehill.com/policy/finance/3611089-biden-nominee-for-fed-resigns-after-criticism-from-republicans/
- The Federal Reserve's consideration of cutting interest rates is influenced by a weaker job market, ongoing uncertainty surrounding trade policies, and inflation that remains above the Fed's target.
- Some economists suggest that if the recent weak jobs data reflect a supply-side labor shortage, cutting interest rates could worsen inflation.
3.michelle bowman, a top official at the Federal Reserve, believes that interest rates should be lower due to the weaker job market, and wants the Fed to potentially cut rates three times this year.
- If the Fed decides to cut interest rates, it could make it cheaper for people to borrow money for mortgages or other loans, potentially boosting business and consumer spending in the economy, but it could also threaten to push inflation higher.
