After Waller, Trump's nominee for Fed vice chairman speaks out: supports rate cuts as early as July

Written by: He Hao, Wall Street News

After Waller, another Fed official expressed support for a rate cut next month. It is worth mentioning that both of these directors were appointed by Trump during his first term.

On Monday, Fed Governor Bowman said in a speech on the economy and monetary policy that if inflation pressures remain under control, she would support a rate cut as early as July, as risks in the labor market may rise and inflation seems to be steadily moving toward the Fed's 2% goals:

If inflation pressures remain contained, I would support lowering the policy rate closer to neutral at the next meeting and sustaining a healthy labor market. She will continue to monitor economic conditions closely as U.S. government policies, the economy, and financial markets evolve.

On Friday, Federal Reserve Governor Christopher Waller told CNBC he might support a rate cut next month because he is concerned about too much slack in the labor market.

Nick Timiraos, a reporter for the Wall Street Journal known as the "Federal Reserve News Agency," said in his latest article that this is the first time Bowman has made substantive comments on the economic outlook since President Trump appointed Bowman as Vice Chairman of Supervision this spring and she was approved by the Senate. Bowman previously paid close attention to inflation concerns, and her latest statement is a meaningful shift.

The article said that among the Federal Reserve officials who have spoken since last week's meeting, the first to express their intention to cut interest rates at the next Fed meeting in late July were two officials appointed by Trump during his first term.

Second Fed official paves way for rate cut

At its June meeting last week, the Fed kept its benchmark interest rate in the range of 4.25% to 4.5%, a level generally considered to be above the neutral rate that neither stimulates nor suppresses economic activity. After the meeting, Fed Chairman Powell reiterated that policymakers can be patient in adjusting interest rates and wait for more details on changes in President Trump's economic policies, especially trade policies.

Bowman said she supports the Fed's June decision. She mentioned that the post-meeting statement reflects a shift in policy stance, that current policy uncertainty has decreased, and that attention is shifting to possible weakness in the labor market.

Economists had worried that Trump's tariffs would push up inflation, but the impact of the Trump administration's expanded use of tariffs has not yet been reflected in economic data, with labor market and inflation data remaining strong. At the same time, Trump has softened his rhetoric and opened the door to negotiations with major trading partners.

Bauman recently pointed out:

Data show that tariffs and other policies have yet to have a noticeable impact on the economy. I think the impact of tariffs on inflation may be more delayed and smaller than initially expected, especially because many businesses have already stockpiled inventory in advance. Continued progress in trade and tariff negotiations has made the economic environment significantly less risky. Changes in trade policy "may have only a minimal impact" on the Fed's preferred inflation measure.

The Fed's mandate is to maintain price stability and achieve maximum employment. Bowman noted that due to recent weakness in consumer spending and signs of weakness in the labor market, the downside risks to the Fed's employment goals may soon become more prominent. "In my view, it is appropriate to acknowledge that the balance of risks has changed. When thinking about the future policy path, it is time to consider adjusting the policy rate."

The Fed's next FOMC meeting is July 29-30. According to CME Group's FedWatch tool, traders currently only see a 23% chance of action at that meeting, while the probability of a September rate cut is about 78%.

After Fed Governor Bowman talked about the prospect of rate cuts:

• The S&P 500 index rose 0.57% to a new intraday high, the Dow Jones Industrial Average rose 0.42%, and the Nasdaq rose 0.55%.

• The yield on the 10-year U.S. Treasury bond fell by more than 5.5 basis points, hitting a daily low of below 4.32%. The yield on the two-year U.S. Treasury bond fell by nearly 4 basis points in the short term, hitting a daily low of nearly 3.85%. Since 19:35 Beijing time, it has continued to fall from 3.92%, with two significant declines.

Bowman mentioned that Trump's tariff policy may have a temporary and limited impact on prices, making him the second senior Fed official to express similar views in recent times, paving the way for a rate cut as early as July.

Another Federal Reserve Board member, Waller, also said in an interview with CNBC last Friday that he believed the Fed could consider cutting interest rates in July.

Trump, who has been pressuring the Fed to lower interest rates to reduce the cost of financing the ballooning U.S. national debt, doubled down on his criticism of Powell and the Fed’s board of governors after the central bank decided last week to stay on course.

Trump has said he thinks the Fed should cut rates by at least two percentage points. Bowman did not mention in her remarks how much she thought rates should be cut, while Waller said such an aggressive rate cut was not necessary.

Bowman on regulation

Bowman, the Fed's vice chairman for supervision, warned the same day that the current approach to leverage ratio regulation has had unintended consequences in the market. It is time to revisit this key capital buffer mechanism because there are concerns that the rule restricts banks' trading activities in the $29 trillion U.S. Treasury market. Bowman said:

The impact of the leverage ratio on bank-affiliated securities firms could have broader market implications, including market volatility like that observed in Treasury market intermediation. Once we identify unintended consequences that were not considered when developing regulatory approaches, we must consider revisiting earlier regulatory and policy decisions.

Bowman outlined an ambitious agenda earlier this month — from reviewing the capital buffer known as the supplementary leverage ratio to exempting community banks from regulatory requirements for larger financial institutions.

According to previous media reports, the Federal Reserve and other regulators will announce potential changes to the leverage ratio rules this week, intending to adjust the overall ratio rather than excluding specific assets such as U.S. Treasuries as some observers predicted.

She also said the Fed will meet on July 22 to discuss bank capital issues, noting that "simple reforms" could improve the resilience of Treasury markets in times of stress. Bowman has previously criticized regulators for plans to require the largest U.S. banks to significantly increase their capital to prepare for a potential crisis.

Bowman is widely expected to back a major relaxation of the proposal, known as “Basel III Finale.” The plan, originally unveiled in 2023, would have increased capital requirements for large banks by 19%. The Fed later backtracked amid industry opposition.

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