[WASHINGTON] A key US central bank official called on Monday for an interest rate cut as early as July if inflation effects from President Donald Trump’s sweeping tariffs remain limited.
The comments by Federal Reserve vice-chair for supervision Michelle Bowman came days after Fed governor Christopher Waller also said the bank could lower rates as soon as next month – amid differences among officials on how they should respond to levies.
“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 labour market,” Bowman said in prepared remarks for a conference in Prague.
In its policy meeting this month, the Fed held its benchmark lending rate at a range between 4.25 per cent and 4.50 per cent, keeping it unchanged so far this year.
Fed Chair Jerome Powell said policymakers could afford to wait so as to understand the effects of Trump’s tariffs, although the president has repeatedly urged the independent central bank to cut interest rates.
At a separate event in Milwaukee, Chicago Fed President Austan Goolsbee said once the “dirt in the air” from tariffs settle, officials should proceed with lowering rates.
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He expressed worry about “things moving in a stagflationary direction,” a situation with slow growth and rising prices, while stressing that this is different from saying there is stagflation.
For now, Bowman said the data have not shown clear signs of material impacts from tariffs and other policies, noting that such effects might be smaller than expected.
“All considered, ongoing progress on trade and tariff negotiations has led to an economic environment that is now demonstrably less risky,” she added. “As we think about the path forward, it is time to consider adjusting the policy rate.”
Bowman cautioned about recent softness in spending, alongside “signs of fragility in the labour market.”
Officials have penciled in two rate reductions this year, and the Fed’s next policy meeting will take place in late July.
Since returning to the presidency, Trump has imposed a 10 per cent tariff on nearly all trading partners, alongside steeper duties on US imports of steel, aluminum and autos.
Tariffs complicate the Fed’s job, with economists warning they could fuel inflation and weigh on economic growth.
While central bank officials tend to lift interest rates to curb inflation, they might opt to cut rates when growth is slow.
On Monday, Bowman also said potential upcoming shifts to bank leverage rules would mark a step towards reforming “distorted capital requirements.” AFP
