Michelle Bowman flags job market fragility, signals readiness for further rate cuts

US Federal Reserve Vice Chair for Supervision Michelle Bowman said signs of fragility in the US labour market suggest the central bank should be ready to cut interest rates again if conditions weaken further, according to Reuters.

Speaking at an economic forum in Massachusetts, Bowman said that unless there is a clear and sustained improvement in labour market conditions, policymakers should remain open to adjusting monetary policy towards a more neutral stance. She emphasised that while policy is not on a preset path, the Federal Reserve should avoid signalling a firm pause on further rate cuts without clear evidence that underlying conditions have changed.

Bowman said her baseline outlook remains constructive, with economic activity expected to expand at a solid pace and the labour market to stabilise near full employment as monetary policy becomes less restrictive. However, she noted that risks to the Fed’s dual mandate are uneven. Inflation pressures are likely to ease as the effects of trade tariffs fade, and underlying inflation is already close to the central bank’s 2% target, she said.


In contrast, Bowman flagged growing concerns around employment. While the job market remains near full employment, she described it as increasingly fragile and vulnerable to further deterioration in the months ahead. This potential for rapid change, she said, underscores the need for policymakers to remain nimble.

According to a Reuters report, Bowman characterised the current policy stance as moderately restrictive and said interest rate decisions should be forward-looking. She stressed the importance of relying on forecasts informed by a wide range of economic indicators, as well as ongoing engagement with businesses and communities across the country, Reuters reported.

The Fed enters 2026 with policymakers broadly expecting inflation pressures to moderate, the labour market to stabilise and economic growth to hold up as uncertainty linked to President Donald Trump’s economic policies eases. In the final months of 2025, the central bank cut its benchmark interest rate by a cumulative 75 basis points to a range of 3.50% to 3.75%, aiming to support a softening job market while maintaining sufficient restraint to curb elevated inflation.

At its December policy meeting, Fed officials projected a single quarter-point rate cut in 2026. Recent comments from policymakers suggest there is no immediate urgency to act, as inflation remains above the 2% target and officials are seeking clearer evidence of further disinflation. The Fed also continues to face pressure from Trump to lower rates further, even as the president prepares to name a successor to Chair Jerome Powell, whose term ends in May.

Tensions between the administration and the central bank have intensified following reports that the Fed is being criminally targeted over costs linked to the renovation of its headquarters. Powell has said the attacks reflect broader concerns over the Fed’s independence in setting monetary policy.

Bowman also highlighted vulnerabilities in financial markets, warning that equity valuations appear stretched and that disappointing returns from investments in artificial intelligence could trigger a sharp correction in stock prices.

On bank supervision, she said regulatory priorities would include improving the mergers and acquisitions review process, evaluating capital requirements across the banking system, tackling payments and cheque fraud, and strengthening examiner training and development, according to Reuters.