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The two Fed leaders spoke at different events on Tuesday showing some interesting contrasts.
Federal Reserve Board chair Jerome Powell and Fed vice chair for supervision Michelle Bowman each discussed the path of monetary policy at different events on Tuesday.
Speaking to the Greater Providence Chamber of Commerce on Tuesday, Powell reiterated much of what was said last week when the Fed lowered rates for the first time in 2025. That is, economic growth has moderated, inflation has edged higher, and job growth has slowed. However, he said uncertainty remains high around the path of inflation.
“The overall economic effects of the significant changes in trade, immigration, fiscal and regulatory policy remain to be seen,” Powell said. “A reasonable base case is that the tariff-related effects on inflation will be relatively short lived—a one-time shift in the price level. A ‘one-time’ increase does not mean ‘all at once.’ Tariff increases will likely take some time to work their way through supply chains. As a result, this one-time increase in the price level will likely be spread over several quarters and show up as somewhat higher inflation during that period.”
Powell added that there remain risks to both sides of its dual mandate, which means there is no risk-free path forward.
“If we ease too aggressively, we could leave the inflation job unfinished and need to reverse course later to fully restore 2 percent inflation. If we maintain restrictive policy too long, the labor market could soften unnecessarily,” he said.
The Fed’s decision to lower rates last week was mainly due to the increased risks to jobs, he said. Powell added that the “modestly restrictive” stance puts the Fed in good position to respond to economic developments as they arise.
Bowman: Fed Should Be More Forward Looking
Bowman, addressing the Kentucky Bankers Association Tuesday, said rates should have been lowered in July, as the signs of labor market weakness were already there.
“Given this shift in labor market conditions, I am pleased that we have finally begun the process of removing policy restraint, reflecting the economic conditions and the balance of risks to our employment and inflation goals,” she said.
Bowman expressed concern that the labor market could “enter into a precarious phase” where a shock could tip it into a sudden deterioration.
“Cutting the policy rate 25 basis points and signaling additional adjustments at upcoming meetings should allow longer-term interest rates to remain materially lower than earlier this year and help to support the economy,” Bowman said.
Bowman added that the Fed’s focus should shift away from “overemphasizing” the latest economic data and be more forward-looking.
“A strict interpretation of data dependence is inherently backward looking and would guarantee that we remain behind the curve, requiring us to overcorrect in the future. I think we should consider reframing our focus from overweighing the latest data to a proactive forward-looking approach and a forecast that reflects how the economy is likely to evolve going forward. This approach would better position us to avoid falling behind the curve and then having to implement abrupt and dramatic policy actions,” Bowman said.