Federal Reserve vice-chair for financial supervision Michelle Bowman has recently called for an interest rate cut, citing President Donald Trump’s trade war as a reason for the move. She believes that the impact of the trade war on inflation may not be as significant as some economists fear. This statement comes after another Fed governor, Christopher Waller, also suggested that the central bank should consider cutting rates in response to Trump’s tariffs.
Bowman emphasized that recent data has not shown clear signs of material impacts from tariffs and other policies. She mentioned that the inflationary effect of the trade war may be delayed and have a smaller impact than initially expected. As a result, she expressed support for a rate cut as soon as next month, stating that the economic environment is now less risky.
Following Bowman’s comments, the two-year Treasury yield dropped, indicating traders’ increased bets on rate cuts this year. Bowman, who was nominated by Trump earlier in 2025, also pointed out signs of fragility in the labor market and suggested putting more weight on downside risks to the employment mandate.
The Fed cut interest rates by 1 percentage point last year but has been on pause since December. Some officials are reluctant to cut rates due to concerns that the trade war could lead to inflation. However, 10 out of 19 officials still believe that the Fed will make two or more cuts this year, citing tepid inflation data as a reason for the potential cuts.
In addition to discussing interest rates, Bowman talked about the Fed’s plan to reform US banking regulations, including revisiting leverage ratios and their impact on the Treasury markets. The Fed is expected to lower the minimum leverage ratio for the biggest banks, aligning it with international peers. Furthermore, the central bank is planning a conference to discuss broader reform of US bank regulation next month, which could bring many potential improvements to distorted capital requirements.
Overall, Bowman’s call for an interest rate cut reflects the ongoing debate within the Fed about how to respond to economic challenges, including the impact of Trump’s trade policies. The central bank will continue to monitor data closely and adjust its policies accordingly to ensure economic stability and growth.
