Bowman signals pivot toward labor market defense

Investing.com -- Federal Reserve Vice Chair for Supervision Michelle W. Bowman signaled a shift toward protecting the U.S. workforce as she addressed the Southwestern Graduate School of Banking on Friday. While the central bank recently held interest rates steady, Bowman emphasized that her focus is shifting toward the potential for a rapid deterioration in employment.

The Vice Chair noted that private payroll growth slowed to just 30,000 per month in the final quarter of last year. She expressed concern that the current "low-hiring, low-firing" environment could quickly turn to significant layoffs if broader economic activity weakens further.

Regarding the future path of monetary policy, Bowman explicitly laid out a plan for reducing borrowing costs throughout 2026. "Looking ahead to 2026, my Summary of Economic Projections includes three cuts for this year," Bowman stated during her remarks.

The Vice Chair admitted that the latest decision to pause was a "close call," balancing a desire to hedge against labor risks with the need for data clarity. She argued that after 75 basis points of cuts last year, the Fed can afford to "keep policy powder dry" while awaiting more accurate signals following the government shutdown.

Despite the pause, Bowman warned that the labor market remains vulnerable and said the Fed should be ready to adjust policy if job conditions weaken. She noted that while inflation remains somewhat elevated due to tariff effects, she is confident it will fall to 2% as those one-off shocks wane.

Ultimately, the central bank appears ready to act if the "jobless expansion" threatens to stall the economy entirely. "History tells us that the labor market can appear to be stable right up until it isn't," Bowman cautioned.

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