MNI: Fed Gov Bowman Warns Bigger, Faster Cuts May Be Needed

The Federal Reserve must act "decisively and proactively" to address increasingly fragile labor market conditions, Governor Miki Bowman said Tuesday, warning that bigger and faster rate cuts may be needed. 

"The recent data, including the estimated payroll employment benchmark revisions, show that we are at serious risk of already being behind the curve in addressing deteriorating labor market conditions. Should these conditions continue, I am concerned that we will need to adjust policy at a faster pace and to a larger degree going forward," she said in remarks prepared for a Kentucky Bankers Association convention in Asheville, North Carolina. 

"Now that we have seen many months of deteriorating labor market conditions, it is time for the Committee to act decisively and
proactively to address decreasing labor market dynamism and emerging signs of fragility." 

Bowman reiterated her support for the FOMC's quarter-point rate cut last week, calling it the first of a series of actions to bring the fed funds rate back to neutral. 

"I supported revising the characterization of the policy outlook in the post-meeting statement. It is important we signal that last week’s action includes a forward-looking view of additional adjustments," she said. 

"Cutting the policy rate 25 basis points and signaling additional adjustments at upcoming meetings should allow longer-term interest rates to remain materially lower than earlier this year and help to support the economy." (See: MNI INTERVIEW: Politics Already Influencing Path Of Fed Policy)

INFLATION WITHIN TARGET RANGE

Bowman warned the labor market could enter into a "precarious phase" where a shock could tip it into "a sudden and significant deterioration" and said inflation excluding tariffs has continued to hover not far above target.

A less dynamic labor market this year has led to a significant increase in the number of long-term unemployed workers, and payrolls growth is concentrated in certain sectors, she noted. 

Lower immigration does not fully explain the slowing and may be masking a steeper rise in unemployment this year, she said. 

Meanwhile, core PCE inflation has hovered around 2.5% in recent months if tariff effects are excluded, "which is significant progress and within range of our target." 

"The underlying trend in core PCE inflation appears to be moving much closer to our 2% target than is currently shown in the data," she said.