Fed's Collins and Bowman Signal 2025 Rate Cuts Amid Labor Market Focus

Key Takeaways:

• Susan Collins advocates for interest rate cuts to bolster the labor market while maintaining inflation control.
• Michelle Bowman anticipates two more rate cuts in 2025.
• Officials are focusing on increasing signs of weakness in the labor market.

Susan Collins, President of the Federal Reserve Bank of Boston and a 2025 FOMC voter, articulated the view that the Federal Reserve should continue adjusting interest rates downwards this year. She stressed the importance of supporting the labor market while maintaining a cautious stance to ensure inflation remains under control.

In prepared remarks for an event hosted by the Boston Fed, Collins stated, "With inflation risks having abated somewhat, the downside risks to employment are greater. Therefore, further policy normalization to support the labor market is a prudent course this year."

She noted that "Even with some further easing, monetary policy will remain moderately restrictive, which is crucial to ensure that inflation resumes its downward trajectory, especially after tariff impacts permeate the economy."

Futures contract pricing indicates that investors anticipate Fed officials will begin cutting interest rates at the meeting later this month. If implemented, this would be the second cut this year. In September, policymakers already lowered the benchmark interest rate by 25 basis points, to a target range of 4% - 4.25%.

Collins highlighted the current uncertainty surrounding the recent slowdown in hiring activity, questioning whether it stems from decreased labor demand or a significant reduction in labor supply due to decreased immigration. She mentioned that to maintain a stable unemployment rate, the number of new jobs required monthly might only be 40,000, compared to around 80,000 pre-pandemic.

The Boston Fed President anticipates a "slight increase" in the unemployment rate this year and in early 2026, but believes that hiring activity will eventually rebound as tariffs and economic uncertainty subside.

In a Q&A session following her remarks, when asked about the outlook for interest rates, Collins reiterated that there is no pre-set policy path. She suggested that a scenario of "holding rates steady after further easing" is possible.

"Further easing – perhaps another 25 basis point cut – might be appropriate, but I don't think it's necessary to provide longer-term guidance too early," Collins said. "With the rate cut implemented in September, holding rates steady for a while may be reasonable if further action is taken."

Earlier the same day, Fed Governor Michelle Bowman expressed her expectation that the Fed will cut interest rates at the final two policy meetings of 2025.

"I still think we'll see two more rate cuts before the end of this year," Bowman said at an event in Washington.

She added, "I think that as long as the labor market and other economic data continue to evolve as I expect, we will continue on the path of lowering the federal funds rate."

Bowman supported last month's rate cut decision, but voted against it at the prior July meeting, arguing that rate cuts should have commenced at that time. She was joined in opposition by Fed Governor Christopher Waller. Waller and Bowman are both appointees to the Federal Reserve Board by Trump during his first term. Bowman and Waller have expressed their belief that tariff policies implemented by Trump upon returning to the White House would not lead to sustained inflation, and that the balance of risks has shifted towards the labor market.

Earlier Tuesday, Federal Reserve Chair Jerome Powell gave a speech at another event in Philadelphia, highlighting increasing signs of weakness in the labor market. The Fed's next policy meeting will be held October 28-29, and the final meeting of the year is scheduled for the second week of December. Interest rate futures market positioning indicates that investors anticipate 25 basis point cuts at both meetings.