Federal Reserve Vice Chair of Supervision Michele Bowman signaled a shift toward protecting the American workforce while addressing the Southwestern Graduate School of Banking on Friday. While the central bank recently kept interest rates unchanged, Bowman emphasized that its focus is shifting toward the potential for a rapid decline in employment.
The vice president noted that private-sector wage growth slowed to just 30,000 per month in the last quarter of last year. She expressed concern that the current low-employment, low-layoff environment could quickly turn into large-scale layoffs if broader economic activity weakens further.
Regarding the future course of monetary policy, Bauman explicitly laid out a plan to reduce borrowing costs throughout 2026. Bauman stated during her remarks: Looking ahead to 2026, my summary of economic forecasts includes three rate cuts for this year.
The vice chair acknowledged that the recent decision to pause was a difficult one, as she weighed the desire to hedge against labor market risks with the need for data clarity. She argued that after last year's 75-basis-point rate cuts, the Federal Reserve could maintain its policy strength while awaiting clearer signals following the government shutdown.
Despite the pause, Bowman warned that the labor market remains vulnerable and said the Federal Reserve should be prepared to adjust policy if business conditions weaken. She noted that while inflation remains somewhat elevated due to the effects of tariffs, she is confident it will fall to 2% as these temporary shocks subside.
Ultimately, the central bank appears ready to act if jobless expansion threatens to bring the economy to a complete standstill. As Bauman cautioned, History tells us that the labor market can appear stable until the very moment it isn't.
