Fed Should Be Ready to Cut Rates Again Amid Job Market Risks, Bowman Says

Federal Reserve Vice Chair for Supervision Michelle Bowman said the U.S. central bank should remain prepared to cut interest rates again if the job market weakens according to her statement. In her speech before the New England Economic Forum, she emphasized that the labor market, while near full employment, has become increasingly fragile as she noted.

Bowman noted that monetary policy is 'moderately restrictive' and urged the Fed to remain forward-looking and responsive to changing conditions. She added that policymakers should avoid signaling a pause on rate cuts unless there is clear evidence of improvement in labor market conditions according to her remarks.

The Fed's benchmark interest rate stands at 3.50%-3.75% after three-quarters of a percentage point cut in late 2025. Officials penciled in one rate cut for 2026 during the December 2025 policy meeting as reported.

Why Did This Happen?

The labor market has shown signs of softening, including tepid job growth and a national unemployment rate that recently dipped below 4.4% according to Reuters. These developments have led to a re-evaluation of the timing and pace of potential rate cuts. Goldman Sachs pushed back its expectation for rate cuts in 2026, now forecasting reductions in June and September rather than March and June as the firm stated.

JPMorgan analysts also revised their outlook, suggesting the Fed could keep rates stable through 2026 according to their analysis. The shift in expectations reflects a broader trend of caution among market participants who are factoring in the fragility of the labor market and the lingering effects of trade tariffs on inflation as market analysts noted.

How Did Markets React?

The Federal Reserve is navigating a complex environment. While inflation remains above the 2% target, the impact of trade tariffs is expected to wane, easing some upward pressure on prices as Bowman explained. Market analysts and Fed officials are closely monitoring the labor market and inflation trends as they consider the appropriate policy response according to Reuters.

Goldman Sachs adjusted its forecast to account for weaker-than-expected job data and the prospect of slower wage growth. The firm also reduced its 12-month recession probability to 20% from 30% as reported.

What Are Analysts Watching Next?

The Fed faces growing scrutiny from political figures, including U.S. President Donald Trump, who has pushed for lower interest rates according to Investopedia. Fed officials have publicly defended their independence and emphasized the importance of maintaining monetary policy decisions based on economic fundamentals rather than political pressure as they stated.

Bowman's call for flexibility aligns with a broader recognition that the economic landscape remains uncertain. The labor market's fragility and the potential for further weakening could prompt the Fed to act if necessary. However, policymakers are also cautious about making moves without clear evidence of a sustained improvement in economic conditions according to her analysis.

Analysts will be watching for signs that the labor market is stabilizing and that inflation is moving closer to the 2% target. These factors will play a key role in determining the Fed's next steps in 2026 as Reuters reported.