After Waller, the "Trump nominee" for the Vice Chair of The Federal Reserve (FED) spoke out: supports a rate cut as early as July.

Following the statement from The Federal Reserve Board of Governors Waller supporting a rate cut in July, another governor, Bowman, recently pointed out that if inflationary pressures remain under control, she will support a rate cut as early as July.

Written by: He Hao

Source: Wall Street News

Following Waller, another Federal Reserve official has expressed support for an interest rate cut next month. It is worth mentioning that both of these governors were appointed by Trump during his first term.

On Monday, Federal Reserve Board of Governors member Bowman stated regarding the economy and monetary policy that if inflationary pressures remain controlled, she would support a rate cut as early as July, as the risks in the labor market may rise, while inflation seems to be stabilizing toward the Federal Reserve's 2% target:

If inflationary pressures remain under control, I would support lowering the policy interest rate at the next meeting to bring it closer to a neutral level and maintain a healthy labor market.

As the U.S. government policies, economy, and financial markets continue to evolve, she will keep a close eye on economic conditions.

Last Friday, The Federal Reserve Board of Governors Christopher Waller said in an interview with CNBC that he might support a rate cut next month because he is concerned about the overly weak labor market.

Nick Timiraos, a reporter for The Wall Street Journal, known as the "Federal Reserve News Agency," stated in his latest article that this is the first substantive comment on the economic outlook from Bowman since President Trump appointed her in the spring of this year and she was confirmed by the Senate as Vice Chair for Supervision. Bowman had previously focused heavily on inflation concerns, and her latest statement is a significant shift.

According to the article, among the Federal Reserve officials who have spoken since last week's meeting, the first to express the intention to cut interest rates at the next Federal Reserve meeting at the end of July are two officials appointed during Trump's first term.

The Second Federal Reserve Board of Governors Official Paves the Way for Rate Cuts

At the June meeting last week, the Federal Reserve (FED) maintained the benchmark interest rate in the range of 4.25% to 4.5%, a level generally considered to be above the neutral interest rate that neither stimulates nor suppresses economic activity. After the meeting, Federal Reserve Chairman Powell reiterated that policymakers could take a patient approach to rate adjustments, awaiting more details about President Trump's economic policies, particularly changes in trade policy.

Bowman stated that she supports the Federal Reserve's decision in June. She mentioned that the post-meeting statement reflected a shift in policy stance, the current policy uncertainty has decreased, and the focus is shifting towards potential weakness in the labor market.

Economists were originally concerned that Trump's tariffs would drive up inflation, but currently, the impact of the Trump administration's expanded use of tariffs has not yet manifested in economic data, with the labor market and inflation data remaining strong. Meanwhile, Trump has softened his rhetoric and opened the door to negotiations with major trading partners.

Baumann recently pointed out:

Data shows that tariffs and other policies have not yet had a significant impact on the economy. I believe the effects of tariffs on inflation may be delayed more than expected and to a lesser degree than initially anticipated, especially since many businesses have stocked up inventory in advance. The ongoing progress in trade and tariff negotiations has significantly reduced the risks in the economic environment.

Changes in trade policy may have only a minimal impact on the inflation indicators preferred by the Federal Reserve.

The Federal Reserve's responsibility is to maintain price stability and achieve maximum employment goals. Bowman pointed out that due to recent weak consumer spending and signs of fragility in the labor market, the downside risks the Federal Reserve faces regarding employment goals may soon become more pronounced. "In my view, it is appropriate to acknowledge that the balance of risks has changed. When considering the future policy path, it is time to think about adjusting the policy Interest Rate."

The next FOMC meeting of the Federal Reserve will be held from July 29 to 30. According to the CME Group's FedWatch tool, traders currently only believe there is a 23% chance of action being taken at this meeting, while the probability of a rate cut in September is around 78%.

After The Federal Reserve Board of Governors Bowman discussed the prospects of interest rate cuts:

• The S&P 500 index rose 0.57% to refresh its daily high, the Dow 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, refreshing the daily low to below 4.32%. The two-year U.S. Treasury yield briefly dropped nearly 4 basis points, hitting a new daily low, approaching 3.85%, continuing to decline from around 3.92% since 19:35 Beijing time, showing two significant waves of decline.

Bowman mentioned that the impact of Trump's tariff policy on prices may be temporary and limited, making her the second Federal Reserve official in recent times to express a similar view, which paves the way for a potential interest rate cut as early as July.

Another member of the Federal Reserve Board of Governors, Waller, stated in an interview with CNBC last Friday that he believes the Federal Reserve can consider lowering interest rates in July.

Trump has been pressuring the Federal Reserve to lower interest rates to reduce the financing costs of the increasingly expanding U.S. national debt. Since the Federal Reserve decided to hold steady last week, Trump has been ramping up his criticism of Powell and the Federal Reserve Board of Governors.

Trump has stated that he believes the Federal Reserve should lower interest rates by at least two percentage points. Bowman's speech did not mention what she thinks the rate cut should be, while Waller indicated that such a radical rate cut is unnecessary.

Bowman Discusses Regulation

Bowman is the Vice Chair for Supervision at The Federal Reserve Board of Governors. She warned on the same day that the current leverage ratio regulation has had unintended consequences in the market. It's time to reassess this critical capital buffer mechanism, as there are concerns that the rule restricts banks' trading activities in the $29 trillion U.S. Treasury market. Bowman stated:

The impact of leverage ratios on bank-affiliated broker-dealers may have broader market implications, including the observed market volatility in government bond market intermediation activities. Once we identify those unintended consequences that were not considered when formulating regulatory approaches, we must consider re-evaluating early regulatory and policy decisions.

Bowman outlined an ambitious agenda earlier this month - from reviewing the capital buffer mechanism known as the "supplementary leverage ratio" to exempting community banks from regulatory requirements aimed at large financial institutions.

According to previous media reports, the Federal Reserve and other regulatory agencies are expected to announce potential modifications to the leverage ratio rules this week, proposing to adjust the overall rate rather than excluding specific assets like U.S. Treasuries as some observers have predicted.

She also stated that the Federal Reserve will hold a meeting on July 22 to discuss bank capital issues and pointed out that "simple reforms" could improve the resilience of the treasury market under stress events. Bowman had previously criticized the regulatory agencies' plan to require the largest U.S. banks to significantly increase their capital to cope with potential crises.

People generally expect Bowman to support a significant easing of the proposal known as the "Basel III Finalization." The plan was initially announced in 2023 and aims to increase capital requirements for large banks by 19%. The Federal Reserve (FED) subsequently backed off amidst industry opposition.