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Federal Reserve Vice-Chairman for Financial Supervision Michelle Bowman has already called for a rate reduction in July and said that President Donald Trump’s trade war would have a smaller effect on inflation than some economists fear.
Bowman’s comments come on Monday after Christopher Waller, another Fed Gouverneur, said on Friday that the US central bank should lower the interest rates as soon as next month – with the attention of a gap between central bank officials about how to respond to Trump’s rates.
Bowman indicated that it would support a cut as soon as next month, because recent data “had not shown clear signs of material effects of rates and other policies” and that the inflationary effect of the trade war “can last longer, are more delayed and have a smaller effect than initially expected”.
“All considered, continuous progress in the field of trade and tariff negotiations has led to an economic environment that is now demonstrably less risky,” Bowman said. “While we think about the path forward, it is time to consider adjusting the policy percentage.”
The two-year-old Treasury yield, which is particularly sensitive to the expectations of the interest rate, fell to session lows after Bowman’s comments. The proceeds was the last decrease from 0.08 percentage points to 3.82 percent because traders raised their bets on interest rates this year.
Bowman, who took on her role this month after she was nominated by Trump earlier in 2025, also pointed to “signs of fragility on the labor market” and said: “We need to bring more weight to the downward risks for our employment mandate”.
“Before our next meeting in July we received an extra month of employment and inflation data,” said Bowman in Prague on Monday.
“If upcoming data shows that inflation will continue to evolve favorably, with upward pressure that is limited to freight prices, or if we see signs that softer spending overflows into weaker labor market conditions, such developments must be tackled in our policy discussions and reflected in our deliberations,” she said.
The FED reduced interest rates last year by 1 percentage point, but has been cautious since December, whereby some officials are reluctant to reduce the fear that the trade war could still burn an attack of American inflation.
The last projections of the FED, which were released last week, showed that seven officials think that American interest rates should be on hold from 4.25 to 4.5 percent for the duration of this year to contain a stronger price pressure.
But 10 of the 19 officials who contribute to the predictions still think that the FED will be able to make two or more cuts this year. Those for cutting have pointed to lukewarm inflation data, with in particular weakening of the price growth in services.
Bowman also discussed the plan of the Fed to start a revision of the American banking instructions by reforming the so -called additional lever ratio, which determines how many high -quality capital banks must have at their total assets.
Banks have long been calling on supervisors to alleviate the rule, and complain to them punishing assets with low risk, such as American treasuries and obstructs their ability to facilitate trade on the $ 29TN government debt market.
“The time is for the federal bank agencies to visit lever ratios and their impact on the treasury markets,” said Bowman.
The FED will generally discuss the changes during a meeting on Wednesday, when it is expected to agree to reduce the minimum lever ratio for the largest banks of 5 percent of currently between 3.5 percent and 4.5 percent, making it in line with international colleagues.
The US Central Bank is also planning a conference to discuss a wider reform of US bank regulations next month. Bowman said that this could bring “many potential improvements” to what they called “distorted capital requirements”.
Potential changes include adjusting different thresholds and capital rules to take into account economic growth and inflation, she said. This can lower the extra capital buffer that is required from the eight large American banks that are considered a global systemic interest.
