San Francisco Frontiers - US Fed official urges proactive approach on rates to boost jobs market

The Fed's rate-setting committee should "act decisively and proactively to address decreasing labor market dynamism and emerging signs of fragility," Fed Vice Chair for Supervision Michelle Bowman told a convention in North Carolina.

The world's biggest economy has seen months of deteriorating labor market conditions.

"Should these conditions continue, I am concerned that we will need to adjust policy at a faster pace and to a larger degree going forward," Bowman said.

While Bowman supported the Fed's call to cut interest rates by 25 basis points last week, she was among two Fed governors to also push for a reduction in July, when other officials voted to hold rates steady.

She maintained Tuesday that the Fed should have started slashing rates in July, adding that she is increasingly confident US-imposed tariffs will have a "small and short-lived effect on inflation."

She warned that a shock could tip the labor market into a sudden and significant deterioration.

If economic conditions evolve as expected, Bowman expects the Fed's rate cut last week to be the first in several such moves.

Last Wednesday, Fed Governor Stephen Miran -- who was newly appointed by President Donald Trump -- was the sole dissenter on the Federal Open Market Committee to vote against the 25 basis points cut. Instead, he sought a bigger 50 basis points reduction.

Policymakers, however, remain cautious overall when it comes to steep rate cuts.

Earlier Tuesday, Chicago Fed President Austan Goolsbee told CNBC that "eventually, at a gradual pace, rates can come down a fair amount if we can get this stagflationary dust out of the air."

This refers to a situation of stagnant growth and elevated inflation.

"But with inflation having been over the target for four-and-a-half years in a row, and rising, I think we need to be a little careful with getting overly upfront aggressive," Goolsbee cautioned.

I.Sanders--SFF