Insights from Vice Chair Michelle W. Bowman on Supervision and Financial Stability

On July 30, 2025, I disagreed with the Federal Open Market Committee (FOMC) decision to keep the federal funds rate unchanged. I believed we should have lowered it by 25 basis points.

Inflation was closer to our target, especially when excluding the impacts of tariffs. The job market was nearly at full employment, and I felt it was time to begin shifting our policy toward a more balanced approach. The economy was showing signs of slowing down, and I believed we needed to prevent potential damage to the job market.

Current Economic Snapshot

Despite some slowdowns, the U.S. economy has shown resilience. While growth has softened, the job market remains stable. We saw progress in reducing inflation toward our 2% target, particularly after adjusting for tariff-related price hikes.

Consumer spending has diminished this year compared to the strong gains we saw in 2024. Higher interest rates, slower personal income growth, and rising credit card debt among lower-income households are likely contributing to this weak demand.

Total payroll employment continues to rise moderately, and unemployment remained low in June. However, the job market feels less dynamic lately. Many businesses are cutting back on hiring but are keeping existing employees. Job growth has also been limited to certain sectors, mainly in healthcare and social services, which are less affected by economic fluctuations.

Challenges Ahead for Employment

I’m increasingly concerned about our employment goals. The risks related to price stability seem to be easing; I’m confident that tariffs won’t continuously pressure inflation. With inflation trending toward our target, along with softer demand and signs of vulnerability in the job market, it’s essential we focus more on employment risks.

After experiencing workforce shortages during the pandemic, companies have been slow to lay off workers, even with the economic slowdown. They seem willing to accept lower profit margins since they can’t easily pass on costs to consumers amid weak demand. If this demand doesn’t improve, companies may face difficult choices regarding layoffs, especially as hiring conditions have shifted.

Navigating Policy in Changing Times

Given that tariff impacts are likely to be temporary, it’s reasonable to overlook some short-term inflation spikes. As economic conditions evolve, I advocate for gradually adjusting interest rates toward neutral levels. This move would help keep the job market strong and aid our dual goals of maximum employment and price stability. Delaying action could worsen the job market and slow growth even further.

It’s crucial for the Committee to maintain a consistent approach to monetary policy, especially during times of economic change.

I understand that other FOMC members see things differently and are more comfortable with maintaining the current rate. However, I’m dedicated to collaborating with my colleagues to ensure that our monetary policy effectively supports both employment and stability.

According to a recent report by the Federal Reserve, the inflation rate has decreased significantly in the last quarter, reinforcing the belief that a measured approach in adjusting interest rates could bear fruitful results for the economy.

By reflecting on both current data and past experiences, we engage in a continuous process of learning and adapting to maintain a healthy economic environment.

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