There is an “upheaval” at the Fed Board of Governors.[1] On July 30, Vice Chair for Supervision Michelle W. Bowman released a statement about her dissent from the Federal Open Market Committee’s (FOMC) July decision to leave interest rates unchanged. Gov. Bowman favored a 25 basis point cut. This was interesting and unusual. Interesting because the much-discussed potential rate cut was 50 basis points. Unusual because there was a dissent (this was the first in five years[2]) and because there was a statement accompanying her dissent (a rare occurrence). See for yourself.
Fig01 Bowman Statement (excerpt) (click for larger image)
Should the Fed Cut Rates?
My answer: a resounding NO! The economy is doing fine. Inflation has not yet been fully brought under control, even by the Fed’s now-abandoned adjusted inflation targeting.[3] For example, here’s what the core price deflator for consumption expenditures looks like[4]
Fig02 core pce 2020 to 2025 from US Bank. Data from BEA.
As always, click here for my Excel workbook. Most of this workbook is from BEA data.
But they went ahead and did it, probably motivated by one bad jobs report (which used the first estimate, notable for being amazingly unreliable). There does seem to be a downward trend in the labor market, undoubtedly caused by both actual and uncertainty about future tariffs.
The August Jobs Report
In brief: dismal. Here’s the opening paragraph from the BLS “Employment Situation – August 2025.”
Fig03 August Jobs Report (click for larger image)
I’ll reiterate what has become an ongoing theme. Tariffs are supply shocks. The Fed can either validate the inflation (cut rates) or fight it (keep rates unchanged). Cutting rates turns a one-time price shock (the tariffs) into inflation. The upside is the labor market will improve. The downside: a one-time increase in the price level is converted into actual, ongoing inflation.
Keeping rates unchanged will have no effect on the economy. Under my proposed doctrine of First Do No Harm, the Fed should not change their interest rate target, fighting neither inflation nor unemployment.
- Not my word choice. Blame Matt Grossman at the Wall Street Journal. “Fed Upheaval Sows New Rate Uncertainty” (September 2 2025 p.2, https://www.wsj.com/economy/central-banking/fed-interest-rate-cut-lisa-cook-2f3c7e0f?mod=Searchresults&pos=2&page=1). ↑
- US Bank Wealth Management, “Federal Reserve calibrates policy to keep inflation in check” August 7 2025. Available at https://www.usbank.com/investing/financial-perspectives/market-news/federal-reserve-tapering-asset-purchases.html ↑
- Inflation targeting is trying to hit the inflation target on average. If the target is 2%, that can be met by having annualized inflation of 5% in month 1 and −1% in month 2. The average over the two months is (5% + −1%)/2 = 2%. ↑
- US Bank Wealth Management, op.cit. ↑
