In a speech on the economic outlook, Federal Reserve Board Vice Chair for Supervision Michelle W. Bowman reviewed the Federal Open Market Committee’s 2025 pivot to easing and argued that policy should remain proactive as labor market fragility becomes the larger risk even as inflation moves closer to 2 percent. She supported the 25 basis point reductions in September, October and December that brought the federal funds rate target range to 3-1/2 to 3-3/4 percent, and said the Committee should remain ready to adjust policy closer to neutral absent a clear and sustained improvement in labor market conditions. Bowman said real gross domestic product growth appeared to have exceeded 2 percent in 2025, supported by business investment including data centers and artificial intelligence-related spending, while consumer spending and residential investment weakened and housing affordability remained very low. The unemployment rate rose to 4.4 percent in December amid a decline in hiring, with private job gains averaging about 30,000 per month in the fourth quarter and increasingly concentrated in health care and social services; she also pointed to increases in involuntary part-time work, multiple jobholding, long-term unemployment and job cut announcements as indicators of potential further deterioration. On inflation, she said 12-month core personal consumption expenditures inflation likely stood at 2.9 percent in December but would have been close to 2 percent after removing estimated tariff effects, with core services inflation roughly consistent with the target and core goods inflation expected to ease as one-time tariff-related adjustments fade. She also highlighted supervisory and regulatory steps taken since becoming Vice Chair for Supervision in June, including changes to the large financial institution ratings framework, revisions to the enhanced supplementary leverage ratio, removal of reputational risk from examination tools, supervisory operating principles, proposals to recalibrate the community bank leverage ratio and to improve stress test transparency and reduce volatility, a request for information on payments fraud, withdrawal of climate-related supervisory guidance, a new policy statement to facilitate responsible innovation by Board-supervised banks, and a review of regulatory reporting requirements. Work underway includes implementing responsibilities under the GENIUS Act on stablecoins and further efforts on the mergers and acquisitions review process, capital requirements, payments and check fraud, and examiner training.

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