Fed’s Bowman Sounds Alarm: Central Bank Already Behind Curve, Demands Faster, Larger Rate Cuts

The Federal Reserve finds itself playing catch-up as Governor Michelle Bowman issues a stark warning about monetary policy lag.

Behind the Curve

Bowman contends the central bank has fallen behind inflation dynamics and requires more aggressive action. The call for accelerated rate cuts signals deepening concerns within the Fed's own ranks about current policy effectiveness.

Pressure Mounts

With economic indicators flashing mixed signals, Bowman's push for larger cuts reveals fractures in the Fed's consensus approach. The debate centers on whether gradual adjustments can sufficiently address evolving macroeconomic conditions.

Market Implications

Traditional finance institutions scramble to recalibrate expectations while cryptocurrency markets watch closely - because when central banks panic, digital assets tend to benefit from the chaos. Another case of legacy finance playing checkers while crypto plays chess.

Bowman calls out Fed’s delay and pushes for faster cuts

Last Wednesday, Michelle joined the majority of her Fed colleagues to support a 25 basis point cut to the benchmark rate, as Cryptopolitan reported. That vote followed months of public and private pressure from the TRUMP administration. The committee now expects two more similar cuts before the year ends. But Michelle said that’s still not enough.

She reminded the audience that since June, she’s been telling other policymakers that they should’ve already started cutting. Back in August, she said she wanted three rate cuts this year. She’s been pushing for more aggressive easing while others on the committee were still holding back.

Her view lines up with Trump’s most recent Fed appointee, Governor Steve Miran, who made a speech earlier this week saying the economy was at risk unless interest rates dropped sharply. Steve said the current rate level is too restrictive and called for “a series of outsize cuts.”

Federal Reserve Chair Jerome Powell said last week that “growing signs of weakness in the labor market” played a big role in the committee’s decision to finally approve the September cut.

On that front, Michelle also said she now believes the inflation effects from tariffs will likely be “small and short-lived.” While that statement shows some optimism, she still stressed the need to focus on the job market first.

Goolsbee explains neutral rate and announces labor monitor

Not many others are with Michelle on this though. Chicago Fed President Austan Goolsbee said Tuesday on CNBC that while he backed the recent rate cut, the Fed “should be cautious about making additional rate reductions.”

He added, “Eventually, at a gradual pace, rates can come down a fair amount if we can get this stagflationary dust out of the air.” But Goolsbee also warned that after four and a half years of inflation running hot, the Fed shouldn’t rush.

Even though he’s not ready to speed up cuts, Austan admitted that the Fed’s current policy rate is higher than where it should be long-term. He said the “neutral” rate (that magic number that doesn’t push or pull on the economy) is likely around 3.1%, and he feels “comfortable” with that.

Based on the committee’s “dot plot” projections, two more cuts are expected this year, with one cut per year after that. Austan said he’s fine with that timeline, but any additional changes WOULD depend on how things play out in the economy.

At the same time, Austan introduced a new labor market monitor developed by the Chicago Fed. It pulls data from 11 sources to track unemployment, layoffs, and hiring in real time. The system predicts September’s unemployment rate will hold steady at 4.3%. That’s still low historically, but it doesn’t cancel out the slowdown in hiring that’s been showing up in recent trends.

He said the monitor will provide ongoing forecasts for layoffs and the rate of hiring among unemployed workers. So far, he said, the system is showing “a lot of stability” in the labor market, despite the broader signs of slowdown.

Get up to $30,050 in trading rewards when you join Bybit today