Fed's Bowman signals possible interest rate cut in July

© Reuters

Investing.com -- Federal Reserve Vice Chair for Supervision Michelle Bowman indicated Monday she would support lowering interest rates as soon as the Fed's next meeting in July if inflation continues to move toward the central bank's 2% target.

Speaking at a conference in Prague, Bowman noted that if upcoming data shows inflation "continuing to evolve favorably" or if there are "signs that softer spending is spilling over into weaker labor market conditions," she would back a rate cut.

"Should inflation pressures remain contained, I would support lowering the policy rate as soon as our next meeting in order to bring it closer to its neutral setting and to sustain a healthy labor market," Bowman said.

Bowman pointed to recent economic data showing inflation moderating and the labor market remaining stable. She highlighted that core PCE inflation stood at 2.6% in May, down from 2.9% at the end of last year, while the unemployment rate remained at 4.2%.

"With inflation on a sustained trajectory toward 2 percent, softness in aggregate demand, and signs of fragility in the labor market, I think that we should put more weight on downside risks to our employment mandate going forward," she said.

The Fed maintained its target range for the federal funds rate at 4.25-4.5% at its meeting last week. Bowman supported this decision, saying she wanted "further confirmation that inflation is close to our 2 percent target on a sustained basis."

Bowman also addressed concerns about Treasury market functioning, noting that the Federal Reserve Board will consider amendments to the enhanced supplementary leverage ratio (eSLR) that applies to the largest U.S. banks. She explained that leverage ratio requirements have increasingly become binding constraints on large banks, potentially affecting their ability to intermediate in Treasury markets.

The Fed will host a conference on July 22 to discuss the U.S. bank capital framework, including the design and calibration of leverage ratios.