Three interest cuts in 2025 says Fed vice chair

Michelle W. Bowman, the Federal Reserve’s vice chair for supervision, is sharpening her call for interest rate cuts, pointing to fresh evidence of labor market weakness as reason to move sooner rather than later.

Speaking to the Kansas Bankers Association on Saturday, Bowman said, “The latest labor market data reinforce my view” that three rate cuts this year are appropriate. She has held that forecast since December. The remarks came just days after she dissented, along with Governor Christopher Waller, from the central bank’s decision to keep the federal funds rate at 4.25 to 4.50 percent, where it has been since December.

Bowman’s urgency follows the Labor Department’s latest employment report, which showed the jobless rate rising to 4.2 percent — “close to rounding up to 4.3%,” as she described it — and sharply lower payroll growth. Revisions revealed that hiring over the past three months averaged only 35,000 jobs per month, far short of the pace seen earlier in the year. “This is well below the moderate pace seen earlier in the year, likely due to a significant softening in labor demand,” she said.

While the Fed’s majority has taken a more cautious line, wary that President Donald Trump’s tariffs might slow progress on bringing inflation down to its 2 percent target, Bowman said she now has greater confidence those trade measures will not create lasting inflationary pressure. Excluding tariff-related increases in goods prices, she said, inflation is “much closer” to the Fed’s goal than the official 2.8 percent reading for June suggests.

Bowman has argued that waiting too long to adjust could require more abrupt and potentially damaging moves later. “Taking action at last week’s meeting would have proactively hedged against the risk of a further erosion in labor market conditions and a further weakening in economic activity,” she told the bankers.

Her August 1 statement on the July policy decision offered similar reasoning: “With tariff-related price increases likely representing a one-time effect, it is appropriate to look through temporarily elevated inflation readings. As I recognize that economic conditions are shifting, I believe that beginning to move our policy rate at a gradual pace toward its neutral level will help maintain the labor market near full employment and ensure smooth progress toward achieving both of our dual-mandate goals.”

The Fed has three policy meetings left this year — September, October and December — giving limited runway to deliver the cuts Bowman envisions. Economists often estimate that monthly job gains of about 100,000 are needed to keep employment steady, though Bowman noted that lower immigration since January could mean the threshold is smaller.

Mortgage market professionals will be closely watching the September meeting, as any shift toward easing could lower funding costs for lenders and potentially unlock rate-sensitive demand in housing. Bowman underscored that “upside risks to price stability have diminished,” with housing demand already “at its weakest since the financial crisis.” She added that easing policy gradually from its current restrictive stance would “reduce the chance that the Committee will need to implement a larger policy correction should the labor market deteriorate further.”

Her stance contrasts with Chair Jerome Powell’s emphasis on waiting for more data before moving. For now, the path the Fed chooses will determine not only the direction of borrowing costs for households but also the stability of a cooling labor market that Bowman insists needs immediate support.

Fed officials split on timing and scale of interest rate cuts

The Federal Reserve remains divided over the pace and scale of potential rate cuts, with some policymakers pressing for immediate action while others prefer to wait for more economic data before moving.

Michelle Bowman, the Fed’s Vice Chair of Supervision, has argued for three interest rate cuts in 2025, citing signs of a weakening labour market, including higher unemployment and slower payroll growth.

Christopher Waller, another Fed Governor, joined Bowman in dissenting at the latest policy meeting, warning that the Fed should act before job losses deepen.

Neel Kashkari, president of the Minneapolis Fed, has also noted an economic slowdown and suggested two cuts may be appropriate this year. Lisa Cook, a Fed Governor, and Mary Daly, president of the San Francisco Fed, have both said that further deterioration in unemployment could justify faster easing.

Rafael Bostic, president of the Atlanta Fed, remains more cautious. He acknowledges the softening labour market but currently expects only one rate cut in 2025, saying he will reassess before the September meeting.

Jerome Powell, the Fed Chair, has held to a more measured approach. Rates remain at 4.25–4.50%, and he has stressed the need for more evidence, particularly on the inflationary effects of tariffs, before making a decision. A majority of Fed officials project two rate cuts this year, though seven expect none and others see just one.

What does the market think?

As of 7–9 August, derivatives implied a high likelihood of a 25bp cut at the 17 September meeting; one tracker citing CME FedWatch showed roughly 90 percent odds of a quarter-point move. Pricing remains sensitive to incoming inflation and labour data. 

Three scenarios for September 17

1. Base case: 25bp cut; guidance “data-dependent” (probability high)
   Rationale: rising unemployment and downward revisions to job growth bolster the employment-side case, while core inflation is near, but a touch above, target. A single cut with neutral guidance would align with the June median of two cuts in 2025, keeping optionality for October/December. Risks: a hotter August CPI/PCE could push this toward a hold. 
2. Dovish surprise: 50bp cut with explicit path to two more in 2025 (probability low)
   Requires: a materially weaker August payroll print and benign core inflation. Politically sensitive; leadership has downplayed pre-committing. Would likely need a clear deterioration in labour conditions. 
3. Hawkish hold: no change; signal one cut later in 2025 (probability moderate-low)
   Trigger: upside surprise in near-term inflation or mounting tariff pass-through that keeps the Fed cautious despite softer jobs. Powell has emphasised waiting for more evidence on inflation dynamics linked to trade policy. 

Path for the rest of 2025

If September delivers 25bp, the Committee can either pause until December or proceed with one additional 25bp in October/December to match the June median of two cuts.

Dissenters will continue to argue for earlier action if labour softens further. A meaningful inflation re-acceleration would cap 2025 easing at a single cut.