FED: Bowman And Waller Setting Up For A July Dissent

Though both Gov Waller and Vice Chair Bowman have come out after the June meeting and declared tentative support for a rate cut in July, this still appears to be a minority view. 

• They might be the two biggest doves on 2025 rates. While the SEP is not a perfect guide to guessing policy preferences, there were two 3.6% (75bp in cuts) dots in the June projections (see MNI's tabulation below) and those were the most dovish entries. We doubt opinions have changed much in less than a week, so we would think given they are looking at a July cut that they could well be looking for 3 cuts over the last 4 meetings of the year (Jul / Sep / Oct / Dec).
• Cynically speaking, both might be adopting dovish stances in angling for the top job at the Fed, with the White House's announcement of the candidate to replace Chair Powell next May possible at some point in the coming months. Waller is almost certainly in that conversation, though Bowman hasn't been seen as a major contender having just been given the Supervision job.
• But that said, their (stated) difference on policy with the majority of the Committee appears to be on fundamental grounds, centering on a) the impact of tariffs and b) the timeframe in which those impacts can be seen.
• Gov Waller has said repeatedly that his base case is for the tariffs to have a one-off impact on inflation, despite the risk that inflation is more persistent - arguments that Bowman, who has largely been silent on the issue for the last 5 months, appears to echo in her commentary. And both take the position that tariffs have not had a notable impact on inflation so far in the data, and that cuts could be necessary to bolster a labor market that is showing signs of deterioration.
• Contrast this with Powell last week who repeated that while the next easing "could come quickly", they would learn "a great deal more over the summer on tariffs".
• Indeed Bowman's comments about softening services PCE  offsetting higher goods PCE sounded similar to Powell's last week. But Powell went on to emphasize that "we're beginning to see some effects [on core goods inflation]. We expect to see more". Bowman doesn't fully disagree but emphasizes the overall services vs goods impact, saying today "there will likely be only minimal impacts on overall core PCE inflation from changes to trade policy".
• It does raise the question of what kind of evidence would be sufficient by the July 30 decision for the Committee to cut rates. There's only going to be one more CPI report and one more nonfarm jobs figure by then. That's probably not to convince a patient FOMC majority to support an easing. That sets things up for two prominent dissents to a rate hold at the July meeting.
• But with Bowman not needed to be convinced of a need for easing, there is a much clearer path to rate cuts in the ensuing three meetings: we would guess most of the Board are in the 2-cut median camp already.