Federal Reserve governor Michelle Bowman on Monday said the central bank should consider cutting its key interest rate as soon as its next meeting in July, underscoring deep divisions among Fed officials as they endure sharp criticism from the White House.
Bowman said that President Donald Trump’s tariffs have so far not caused the jump in inflation that many economists feared, and any upcoming increase in prices would likely be just a one-time rise.
“It is likely that the impact of tariffs on inflation may take longer, be more delayed, and have a smaller effect than initially expected,” Bowman said in a speech Monday in Prague. “Should inflation pressures remain contained, I would support lowering the policy rate as soon as our next meeting,” which is scheduled for July 29-30.
Bowman, who was appointed to the Fed’s board of governors by Donald Trump in 2018, is the second high-profile official to express support for a potential July cut in as many days. On Friday, Christopher Waller, also a Trump appointee to the Fed’s board, said in a television interview that the Fed should consider cutting borrowing costs next month.
The blunt calls for rate cuts by Waller and Bowman differ from Fed Chair Jerome Powell’s suggestion in a news conference last week that the central bank would monitor the economy over the summer and see how inflation responded to tariffs before deciding whether to reduce borrowing costs.
The comments arrive as Trump has repeatedly criticized Powell for not cutting rates, calling the Fed chair a “numbskull” and a “fool” for not doing so, raising concerns about the Fed’s independence from politics. The president claims Fed cuts would reduce the government’s borrowing costs, though the rates the government pays are mostly set by market forces, not the Fed.
Bowman appeared particularly dismissive toward the threat of tariffs, which many economists say could slow growth, particularly if companies absorb the cost of the duties rather than passing them on to consumers. Doing so would cut their profit margins, which would reduce their ability to hire and invest in new business.
“Small and one-off price increases this year should translate only into a small drag on real activity,” Bowman said. “I also expect that less restrictive regulations, lower business taxes, and a more friendly business environment will likely boost supply and largely offset any negative effects on economic activity and prices.”
When the Fed lowers the short-term interest rate it controls, it often reduces borrowing costs for mortgages, auto loans, and business loans. Yet sometimes financial markets keep longer-term rates higher: The Fed cut its rate a full percentage point last year, to about 4.3%, but mortgage rates only declined slighty.
On Friday, Waller told CNBC that with inflation remaining tame and the economy potentially slowing, the Fed should consider a rate cut next month. He pointed to rising unemployment among recent college graduates as a sign of possible weakening in the economy, and said it was better to cut before the labor market noticeably worsened.
“I’m all in favor of saying maybe we should start thinking about cutting the policy rate at the next meeting, because we don’t want to wait until the job market tanks before we start cutting,” Waller said.
Still, at last week’s Fed meeting, seven of the 19 officials who participate in the central bank’s interest-rate decisions supported keeping rates unchanged for the rest of this year, and two penciled in just one cut.
Inflation has steadily cooled this year despite widespread concerns among economists that Trump’s tariffs would boost prices. The consumer price index ticked up just 0.1% from April to May, the government said last week, a sign that price pressures are muted. Prices for some goods rose last month, but the cost for many services such as air fares and hotels fell, offsetting any tariff impact.
Compared with a year ago, prices rose 2.4% in May, up from 2.3% in April.
Trump has slapped a 10% duty on all imports, along with an additional 30% levy on goods from China, 50% on steel and aluminum, and 25% on autos.
Still, many economists say it is likely that tariffs could push inflation higher in the coming months. Fed Chair Jerome Powell suggested at a news conference last week that the central bank wants to closely monitor how inflation evolves over the next few months before deciding whether to cut rates.
Also Friday, Mary Daly, president of the Fed’s San Francisco branch, said on CNBC that she looked “more to the fall” as an appropriate time to cut rates.
