Bowman Pushes Back on 50 bps Sept FED Rate Cut Expectations

After the soft NFP report last month, the expectations of a 50 bps FED rate cut in September went up above 50%, as markets were seeing a weakening trend in US employment. Last week’s Unemployment Claims improved somewhat the sentiment, bringing the odds of a 50 bps cut at next month’s meeting to around 50-50. However, Fed Governor Michelle Bowman appeared over the weekend, commenting on the shape of the economy and the monetary policy, which left the impression that she wants the FED to be cautious about rate cuts.

Bowman addressed key topics including monetary policy where she cautioned against the FED rushing into rate cuts, emphasizing the risk of sticky inflation. Core PCE inflation in H1 of this year averaged around 3.4% annually, which exceeds the Federal Reserve’s 2% target. Bowman highlighted several factors that could sustain elevated inflation levels, including potential fiscal stimulus, geopolitical risks, and the ongoing normalization of supply chains.

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While acknowledging signs of a cooling labor market, Bowman pointed out challenges in accurately measuring these trends due to data adjustments and complexities, suggesting that policy decisions should be approached cautiously. This stance marks a shift away from the previously estimated 49% chance of a 0.50% cut being priced in for the September meeting.

FED Governor Michelle Bowman Comments Over the Weekend

Bowman further mentioned that if the economic figures will show inflation steadily falling towards 2%, it would be appropriate to slowly reduce interest rates. So she stressed the importance of patience and warned against overreacting to any single data point, as it could undermine ongoing efforts to curb inflation.