Fed Vice Chair Michelle Bowman supports July interest rate cut

After the weekend’s global events, many expected that the bombing of Iran’s nuclear facilities would influence bond yields, either up or down, today. However, the real surprise came from Michelle Bowman, Federal Reserve Vice Chair of Supervision, who talked about a potential rate cut in July.

In a speech she gave at a research conference on Monday, Bowman said: “Should inflation pressures remain contained, I would support lowering the policy rate as soon as our next meeting in order to bring it closer to its neutral setting and to sustain a healthy labor market.” 

The comment means that Bowman doesn’t want to wait for more data on tariffs, which could result in no rate cuts in 2025, and is instead advocating for moving the Fed policy to neutral, since we have made good progress on inflation.

This is a stark difference from Fed Chair Jerome Powell’s take during the last Fed press event, where he talked about the labor market being rough for people looking for work, but he wouldn’t cut rates since he hadn’t seen layoffs yet. We discussed the aftermath of the Fed press event in this podcast. 

Earlier this year I joked that Bowman joined “team Logan,” meaning labor over inflation should be the concern, as she noted on March 7:  “Although the FOMC has been focused on lowering inflation in the past few years as we continue to make progress on approaching our 2% target, I expect that the labor market and economic activity become a larger factor in the FOMC policy discussion.” 

Bowman’s statement today had a significant impact on the 10-year yield, which remained relatively stable early Monday morning despite the weekend bombing. In fact, at the start of the day, the stock market was up, oil prices did not increase from their highs the previous night and the 10-year yield had only decreased by two to three basis points before Bowman’s headline hit the news.

On today’s episode of the HousingWire Daily podcast, I talked about Bowman and Christopher Waller as being better candidates for the next Fed Chair, as they have a focus on the labor market over inflation. This podcast gives an outlook on why I believe Waller or Bowman are better choices for President Trump than Kevin Warsh.

President Trump has taken a hardline approach with Jerome Powell, demanding a 2.5% rate cut last week. I wrote about how this approach may not be practical, as he is seeking lower rates to improve the government’s budget in this article. Bill Pulte, director of the Federal Housing Finance Agency (FHFA) has also been actively campaigning on social media, calling for Powell to resign.  

Although these strategies may not yield the desired results, an open endorsement of either Bowman or Waller from the President and Pulte could influence bond traders to consider the future of Federal Reserve policy. Powell is unlikely to be reappointed after his term ends next year. The endorsement of a new candidate would signal to the market the direction of future leadership at the Fed. If bond traders feel that future policy will be different than current policy, the ability for the 10-year yield to head lower will be easier. This doesn’t mean 3%, 4% or 5% mortgage rates anytime soon, but it does mean getting toward 6% and staying there would be much easier.

It’s been a hectic few days, but we need to stay focused on what matters as we discuss the future of mortgage rates and Fed policy. Approximately 65% to 75% of the direction of the 10-year yield and mortgage rates is influenced by Fed policy. What Bowman is suggesting might be a quicker route to achieving a neutral policy than Powell intends.

Powell will be giving testimony to Congress this week, which is bound to provide some dramatic and attention-grabbing moments. In any case, the situation just became even more interesting for the second half of 2025.