Federal Reserve officials debate remotely: Bowman calls for faster rate cuts, Goolsbee urges caution

Federal Reserve Vice Chair for Supervision Bowman said on Tuesday that the Fed may have acted too late in supporting the labor market. If demand conditions weaken and businesses begin layoffs, the Fed may need to accelerate the pace of rate cuts.

In her speech, Bowman clarified that the focus should be on potential issues in the job market, and there is largely no need to be overly concerned about inflation risks. She pointed out that hiring is currently slowing down, "The Committee has reached a moment to take decisive and proactive action to address the declining vitality of the labor market and newly emerging signs of fragility."

"In responding to the deteriorating conditions in the labor market, we are very likely at risk of having acted too late. If this situation continues, I am concerned that in the future we will need to adjust policy at a faster and larger pace," Bowman said. "If demand conditions do not improve, businesses may have to start layoffs."

Bowman was appointed by Trump and has been mentioned as a potential candidate for Fed Chair. Last week, she supported the Fed's decision to cut rates by 25 basis points, which is more cautious compared to the newly appointed Fed Governor Stephen Miran, who is on leave from the Trump administration and supported a 50 basis point cut.

However, Bowman stated that for her, the accompanying monetary policy statement mentioning "given the rising risks in the job market, further rate cuts may be necessary in the future" is crucial.

"If the economy develops as I expect, last week's action should be the first step in bringing the federal funds rate back to a neutral level," Bowman said in a speech to the Kentucky Bankers Association.

Although the latest dot plot median expectation shows that the Fed will cut rates by another two 25 basis point moves this year, there are clear differences among policymakers regarding the path of rate cuts.

On the same day, Chicago Fed President Goolsbee stated that given inflation is above target and trending upward, the Fed should be cautious about further rate cuts.

"If we can dispel the current stagflationary cloud, in the long run, rates may be able to be lowered significantly at a gradual pace," Goolsbee said in an interview with CNBC on Tuesday. "But inflation has been above target for four and a half consecutive years and is still rising. I don't think we should take overly aggressive easing measures in the early stages; we need to remain cautious."

Goolsbee said that current monetary policy is in a "mildly restrictive" state. He added that the Chicago Fed's analysis of the labor market shows that the market is generally stable at present—although hiring has slowed, the layoff rate remains low.

This week, more than a dozen Fed officials have given speeches, continuing the debate on "how fast and by how much rates should be cut as the US job market may be at a turning point." Inflation remains one of the concerns, and policymakers need to find a rate path that ensures inflation returns to the 2% target without causing serious harm to economic growth or the unemployment rate.

Fed Chair Powell will deliver a speech later on Tuesday. On Monday, several officials said that since inflation is still nearly one percentage point above the target, they remain cautious about further rate cuts; Miran said that given the Trump administration's policies are changing demographics, trade, and inflation dynamics, he would take aggressive rate cut measures.

Last week, the Fed cut its benchmark rate by 25 basis points, the first rate cut since the start of Trump's current term, also marking a shift in the Fed's approach—placing greater emphasis on potential risks emerging in the job market.

As early as July this year, when the Fed kept rates unchanged, both Bowman and Fed Governor Waller—also a candidate for the next Fed Chair—voted against the decision.