Fed Vice Chair: Supports Three Rate Cuts Within the Year

Last week, U.S. President Trump announced on the 7th the nomination of Stephen Milan, Chair of the White House Council of Economic Advisers, to serve as a member of the Federal Reserve Board, filling the vacancy left by the sudden resignation of Fed Governor Adriana Kugler. Trump stated on social media that Milan's term would last until January 31, 2026, while the search for a long-term candidate for the position would continue.

The market widely views Milan as a relatively "dovish" Fed governor, and this appointment further strengthens the "dovish" faction within the Fed. This has heightened market expectations for future Fed rate cuts.

More importantly, over the past weekend, the Fed's official website released the latest speech by Vice Chair for Supervision Michelle Bowman. Bowman expressed support for three rate cuts within 2025, stating that this stance has been reinforced by recent weak U.S. labor market data.

"At the last FOMC meeting, I dissented from the Committee's decision to keep the policy rate unchanged. So far this year, the FOMC has maintained the federal funds rate target range at 4.25% to 4.5%. At the beginning of the year, I believed this policy stance was appropriate, as it provided us time to monitor progress toward the inflation target and better understand the impact of government policies on the economy," Bowman said.

However, in her view, economic conditions appear to be changing, and policy decisions should reflect this shift. After excluding the temporary effects of tariffs, inflation has moved significantly closer to the target, and the labor market remains near full employment.

Bowman called for the Fed to begin cutting rates at the September meeting. She argued that against the backdrop of underlying inflation moving toward the 2% target, weak aggregate demand, and signs of fragility in the labor market, the Fed should focus on risks to the employment goal. "Given that tariff-related price increases may be a one-time effect, I believe inflation will return to 2% after these effects fade. Since monetary policy changes take time to transmit to the economy, temporary high inflation data should be overlooked, and policy restrictions should be appropriately relaxed to avoid weakening the labor market," Bowman said.

Recently, several Fed officials, including San Francisco Fed President Daly, Minneapolis Fed President Kashkari, and Governor Cook, have delivered "dovish" signals, urging the Fed to cut rates as soon as possible. The market now widely believes that a Fed rate cut in September is almost certain, with the suspense shifting to whether the cut will be 50 basis points. Data from CME FedWatch shows that investors currently see a 91.5% probability of a 25-basis-point rate cut in September.

Additionally, several Fed officials will deliver speeches this week, including Richmond Fed President Barkin, Chicago Fed President Goolsbee, and Atlanta Fed President Bostic. These remarks may provide further clues about the central bank's monetary policy stance.