Bowman highlights labor market fragility as key policy risk
Federal Reserve Vice Chair Michelle W Bowman emphasized that labor market fragility poses a greater risk to the economic outlook despite inflation moving closer to target. Speaking at the New England Economic Forum, she reviewed recent policy decisions and current economic conditions.
Proactive easing amid shifting risks
The Federal Open Market Committee (FOMC) resumed policy easing in September 2025, lowering the federal funds rate target range by 25 basis points at its September, October, and December meetings.
This brought the range to 3-1/2 to 3-3/4 percent, reflecting a total of 75 basis points of cuts since September.
These decisions aimed to proactively limit the risk of greater and more persistent damage to the labor market, while inflation showed signs of a sustained downward trajectory toward the 2 percent objective.
Bowman voted in favor of these actions, citing weakening labor market conditions and her expectation that inflation, excluding tariff effects, would soon be near the 2 percent goal.
She noted that assessing the appropriate path and timing of further adjustments remains crucial.
Beneath the surface: Labor market fragility
While the U.S. economy has continued to expand at a solid pace, Bowman expressed concern about signs of fragility in the labor market.
The unemployment rate increased substantially to 4.4 percent in December 2025, driven by a decline in hiring rather than increased layoffs.
Private job gains averaged only about 30,000 per month in the fourth quarter, well below the level needed to prevent a rise in unemployment.
Wage growth has slowed to a pace consistent with 2 percent inflation, indicating the labor market is no longer a significant source of inflationary pressure.
However, indicators like the rising share of part-time workers for economic reasons and increased multiple job holders point to growing fragility.
Proactive cuts, lingering concerns
Bowman's detailed account of the Fed's proactive rate cuts underscores a shifting risk assessment, prioritizing employment over inflation.
Her emphasis on labor market fragility, despite positive inflation trends, suggests a cautious stance on future policy normalization.
This perspective highlights the ongoing challenge of balancing dual mandates in an evolving economic landscape.