Federal Reserve Board member Michelle Bowman dissented from the Federal Open Market Committee's (FOMC) decision to hold the federal funds rate target range steady at this week’s meeting, advocating for a 25-basis-point rate cut. Bowman argued that economic growth is slowing, the labor market is showing signs of weakness, and inflation is nearing its target, making a rate cut a prudent measure to buffer against further economic softening and protect the labor market.

Bowman's Full Statement

On Wednesday, July 30, 2025, I dissented from the Federal Open Market Committee’s (FOMC) decision to maintain the target range for the federal funds rate. As noted in the post-meeting statement, I favored lowering the target range for the federal funds rate by 25 basis points. After stripping out the transitory effects of tariffs, inflation has clearly neared our target, while the labor market remains close to full employment. With economic growth slowing this year and the job market showing signs of waning vigor, I believe we should gradually shift our slightly restrictive policy stance toward neutral. This move, in my view, could proactively buffer the economy against further weakening and protect the labor market from damage.

The U.S. Economy Remains Resilient

During the first half of this year, the U.S. economy remained resilient. Despite a significant slowdown in potential economic growth, the labor market remained stable near full employment. At the same time, inflation is progressing toward the 2% target, a progress that is especially noticeable after stripping out tariff-induced increases in goods prices. Private domestic final purchases this year have grown far more slowly than the robust levels seen in 2024, reflecting slower consumer spending and a decline in residential investment. This softening in demand may be related to higher interest rates, slower growth in personal income, reduced liquid asset buffers for lower-income households, and increased use of credit cards. Nonfarm payrolls continue to grow modestly, and the unemployment rate remained at a historically low level in June. However, the dynamism of the labor market is decreasing, and signs of vulnerability are gradually increasing. The employment-to-population ratio has declined significantly this year, companies are reducing hiring but retaining existing employees, and job growth is mainly concentrated in a few industries less affected by the economic cycle, such as healthcare and social services.

Inflation Subsiding

Excluding the impact of tariffs on goods prices, the year-over-year increase in core personal consumption expenditure (PCE) prices would be less than 2.5% in June, lower than 2.9% last December, and closer to our 2% target. This progress is mainly due to a significant slowdown in core PCE services inflation, which is in line with the recent weakening in consumer spending, and also shows that the labor market is no longer a source of inflationary pressure.

Growing Concerns About Employment Goals

With regard to achieving dual mandates, I believe that the upside risks to price stability have diminished, and I am more confident that tariffs will not have a lasting impact on inflation. With inflation stabilizing at 2%, weak aggregate demand, and signs of vulnerability in the labor market, we should pay more attention to the risks to employment goals. So far, due to memories of labor shortages during the COVID-19 pandemic still fresh in mind, companies remain reluctant to lay off employees in the context of economic slowdown. Moreover, in the face of weak demand, companies tend to reduce their profit margins because they cannot fully pass on costs and raise prices. If demand conditions do not improve, companies may eventually have to start layoffs, and given the changes in labor market conditions, re-hiring may not be as easy as it was in the past.

The Policy Path I Understand

Given that the price increases driven by tariffs may be a one-time effect, it is necessary to look beyond short-term high inflation readings. As economic conditions change, I believe we should begin to gradually push interest rates toward a neutral level, which will help keep the labor market close to full employment and ensure the smooth achievement of our dual mandates. If action is delayed, the labor market may deteriorate, and economic growth may slow further. Taking action early and gradually approaching the neutral level can avoid unnecessary erosion of the labor market and reduce the likelihood that the Committee will have to take larger policy corrections in the future. In my view, it is crucial that the Committee maintain consistency in its approach to making monetary policy decisions in the face of changing economic conditions. I understand and respect the different views of other FOMC members who prefer to maintain the target range for interest rates unchanged. I remain committed to working with my colleagues to ensure that monetary policy remains in the right place to achieve the dual goals of full employment and price stability.