Stay updated with complimentary alerts
Receive the US interest rates myFT Digest by signing up — get it delivered straight to your email.
Federal Reserve vice-chair for financial supervision Michelle Bowman has advocated for an interest rate decrease as early as July, citing that President Donald Trump’s trade disputes would have a smaller impact on inflation than some experts anticipate.
Bowman’s statements on Monday follow comments from another Fed governor, Christopher Waller, who suggested last Friday that the central bank should contemplate lowering rates as soon as possible — showcasing a divergence in opinions among Fed officials regarding how to address Trump’s tariffs.
Bowman indicated her support for a cut as soon as the following month, pointing out that recent data has not indicated significant effects from tariffs and other policies, and that the inflationary consequences of the trade war might be delayed and less pronounced than initially anticipated.
“Considering all factors, advancements in trade negotiations have minimized economic risks,” Bowman stated. “As we plan ahead, it is time to think about adjusting the policy rate.”
Following Bowman’s remarks, the two-year Treasury yield, which is particularly responsive to rate forecasts, decreased to session lows. The yield was last down 0.08 percentage points to 3.82 per cent as traders increased their expectations of rate cuts this year.
Bowman, who assumed her position earlier this month after being nominated by Trump in 2025, also highlighted “vulnerabilities in the labor market” and suggested that “we should pay more attention to downside risks to our employment mandate in the future”.
“Before our meeting in July, we will have received additional employment and inflation data,” she mentioned on Monday in Prague.
“If upcoming data reveals favorable inflation trends, with minimal upward pressures on goods prices, or if we observe signs of weakening spending affecting the labor market, these developments should be considered in our policy discussions and deliberations.”
The Fed reduced interest rates by 1 percentage point last year but has maintained the status quo since December, with some officials hesitant to cut rates due to concerns that the trade war could fuel inflation once again.
The latest forecasts from the central bank, released last week, indicate that seven officials believe rates should remain unchanged at 4.25-4.5 per cent for the entirety of this year to counter stronger inflationary pressures.
However, 10 out of 19 officials contributing to the forecasts still anticipate that the Fed will implement two or more cuts this year. Supporters of rate cuts have pointed to subdued inflation data, particularly in the services sector.
Bowman also discussed the Fed’s initiative to initiate an overhaul of US banking regulations by revising the supplementary leverage ratio, which dictates the amount of high-quality capital banks must maintain against their total assets.
Banks have long been urging regulators to relax the rule, arguing that it penalizes them for holding low-risk assets like US Treasuries and hampers their ability to engage in trading in the $29 trillion government debt market.
“It is time for the federal banking agencies to reassess leverage ratios and their impact on the Treasury markets,” Bowman emphasized.
The Fed is set to deliberate on changes to the rule at a meeting on Wednesday, where its board is anticipated to agree to reduce the minimum leverage ratio for major banks from the current 5 per cent to a range of 3.5 per cent to 4.5 per cent, aligning it with international counterparts.
The central bank also plans to convene a conference next month to discuss broader reforms to US bank regulations. Bowman believes these discussions could introduce “numerous potential enhancements” to what she referred to as “distorted capital requirements”.
Possible adjustments include revising various thresholds and capital regulations to accommodate economic growth and inflation, she explained. This could reduce the additional capital buffer required of the eight major US banks deemed globally systemically important.
Furthermore, the Fed announced on Monday that it will no longer factor in reputational risk in its bank examinations, discontinuing a practice that critics argue has allowed officials to pressure banks into cutting ties with politically controversial clients or cryptocurrency firms.
“This modification does not change the board’s expectation for banks to uphold robust risk management practices to ensure safety, compliance with regulations, and soundness,” the announcement stated.