Fed’s Bowman and Schmid Push Back Against Rate Cut Expectations

Fed Governor Michelle Bowman and Kansas City Fed President Jeff Schmid have introduced a cautionary note to the rate cut narrative, suggesting that the Fed’s benchmark rate may already be approaching its neutral level following 100 basis points in cuts since September. Their position marks a notable contrast to other Fed officials, including Chairman Powell and Governor Waller, who maintain that rates are still restrictive enough to slow economic growth. Bowman specifically highlighted concerns about strong economic growth and a 20% rise in the stock market over the past year, warning that inflation progress could stall. Morgan Stanley’s Ellen Zentner predicts this divide among Fed officials will likely widen with the new rotation of voting members in 2024. The situation is further complicated by uncertainty surrounding the incoming Trump administration’s economic policies, with Bowman advocating a wait-and-see approach before making further policy decisions. Additionally, Bowman, who is considered a potential candidate for Fed vice chair for supervision, emphasized the need for increased transparency in bank regulation.