At the New England CEO Summit today, Federal Reserve Governor Michelle W. Bowman warned against cutting rates too often, and advocated against overregulation for community banks.
For the housing sector, Bowman’s reluctance to lower rates may prolong higher mortgage rates, but her advocacy for community banks could favor first-time homebuyers who rely on these smaller banks.
Bowman reiterated her support for the decisions made during this week’s Federal Open Market Committee (FOMC) meeting—the Fed’s target range remaining at 4.25% to 4.5% and continuing to reduce the Fed’s securities holdings.
Through gradual changes, the Fed will have adequate time to assess progress on inflation and employment goals, she said.
“After recalibrating the level of the policy rate towards the end of last year to reflect the progress made since 2023 on lowering inflation and cooling the labor market, I think that policy is now in a good place to position the Committee to pay closer attention to the inflation data as it evolves.”
Bowman’s perspective on these issues is being closely watched, with reports that President Donald Trump is eying her for a key regulatory role at the Fed. Her comments also come the same day a key inflation metric showed price increases are still above the Fed’s target.
At the event, Bowman did note her concern that the “easier financial conditions” this past year might have contributed to the “lack of further progress on slowing inflation.”
“In light of the ongoing strength in the economy, and with equity prices substantially higher than a year ago, it seems unlikely that the overall level of interest rates and borrowing costs are exerting meaningful restraint,” she said.
This cautious tone contrasts with the anticipated rate cuts by mid-2025, highlighting the Fed’s priority in fostering maximum employment and maintaining stable prices to inch toward its 2% goal.
Voicing her support for mutual and community banks, Bowman said that mutual bank institutions face two unique issues: challenges in raising capital and unique procedural hurdles in managing the dividend process. Further, these banks must submit annual applications to receive a waiver, hindering their ability to help the local community and raise capital.
“Mutual banks, like all community banks, are vital to the economic success of their communities,” she said. “It is critical that our applications process not act as a limit on a particular type of institution simply due to regulatory inaction or lack of clarity and transparency.”
Noting the overregulation in the banking industry—and how that cost gets passed onto taxpayers, banks and their passengers—Bowman advocated for a balanced regulatory environment and a departure from one-size-fits-all rules.
Looking ahead to this year’s economy, Bowman expects core inflation to moderate this year, and expects it to lower by the end of the year.
“Its progress may be bumpy and uneven, and the upcoming inflation data for the first quarter will be an important indication of how quickly this will happen,” she added. “That said, I continue to see greater risks to price stability, especially while the labor market remains near full employment.”
To read Bowman’s full speech, click here.
