The Federal Reserve's resident
In a speech on Thursday, Fed Gov. Michelle Bowman said she was
"Adopting a more pragmatic approach to policymaking, one that imposes discipline in the exercise of the extensive powers and important responsibilities granted by Congress, would be most effective," Bowman told members of the California Bankers Association.
The prepared remarks come just days after the Fed's chief regulator, Vice Chair for Supervision Michael Barr, announced that
Bowman — the former top bank supervisor in her home state of Kansas and one of two remaining Fed appointees from Trump's first term in office — is viewed by many as a likely candidate to replace Barr as vice chair for supervision.
In what could be a preview of the Fed's regulatory agenda going forward, Bowman said the Fed's regulation and supervision approach should focus narrowly on bank safety and soundness concerns; emphasize the tailoring of oversight based on bank size, business model, risk and complexity; and increase transparency wherever possible.
"I am optimistic about the future of banking in the United States and believe that the banking regulators can support the banking system by adopting a more pragmatic approach," Bowman said.
Bowman criticized supervisors for placing too much emphasis on issues that do not pose immediate risks to bank solvency, particularly in the wake of the failure of Silicon Valley Bank in the spring of 2023. In some cases, she argued, such practices amounted to a "push-down of regulatory requirements designed and calibrated for larger firms to apply to smaller firms."
"One pragmatic change would be to prioritize safety and soundness and deprioritize matters that are not essential to — or that are tangential to — our statutory obligations," she said.
Bowman also accused outgoing regulators of attempting to usher in sweeping policy changes under the broad umbrella of "crisis response." As a result, she said, proposed changes to capital rules and long-term debt requirements were put forth without sufficient justification or explanation.
"When the agencies pursue reforms, it is critical that the problem is clearly identified and that an explanation is given for how each proposal would address the problem," Bowman said. "We should not characterize all reforms as 'crisis response' actions, as doing so does not relieve us of the responsibility to analyze and justify the tradeoffs and alternatives of any particular measure."
She also noted that the treatment of certain findings as confidential supervisory information, or CSI — a designation that prevents banks from sharing or, in some cases, even accessing supervisory assessments of their business practices — have made it difficult for banks to address issues before incurring supervisory downgrades or facing enforcement actions.
While she stopped short of calling for CSI standards to be rolled back, Bowman said agencies should consider the implications of their practices in this realm.
"I am not suggesting that there are always simple solutions to improve transparency, and certainly it is appropriate that much of the information developed in the supervisory process remains shielded as confidential supervisory information," she said. "But regulators must also acknowledge the new world in which we operate, one in which administrative law increasingly demands greater transparency and accountability to act as a check on regulatory overreach."
Bowman also praised the Fed's recent commitment to
She did not mention the lawsuit brought by bank trade groups against the Fed, which was filed one day after the central bank's announcement.
More broadly, Bowman endorsed a change of mindset for bank regulation. She said regulators have recently adopted a binary approach to their work, asking whether each individual policy is sufficiently tough on banks. Instead, she argued, agencies should "think more holistically" about their regulatory output and their resulting tradeoffs.
"While policy views may differ, policy debates should not misinterpret the dynamic of how banks and regulators should operate," she said. "In short, bank regulation and supervision need not be an adversarial system, with banks and regulators acting in opposition."
Inflationary concerns
In her speech, Bowman also shared her views on monetary policy, which skew more hawkish — meaning that she's more concerned about inflation — than some of her counterparts on the Federal Open Market Committee.
After voting against a half percentage-point cut in September, Bowman supported reducing the target range of the federal funds rate by a quarter percentage point at each of the last two FOMC meetings. But she does not anticipate any further cuts this year.
"I supported the December policy action because, in my view, it represented the committee's final step in the policy recalibration phase," she said. "The target range now reflects 100 basis points of cuts since September, and the policy rate is now closer to my estimate of its neutral level, which is higher than before the pandemic."
Bowman said inflation remains "uncomfortably" above the Fed's annualized target of 2%. She believes the risk of loose monetary policy resulting in resurgent inflation is a greater threat to the economy than overly restrictive policy hurting the labor market. Most other FOMC members have said these two risks have roughly come into balance in recent months.
Earlier this week, Fed Gov. Christopher Waller said he believes inflation is still moving toward the Fed's target — albeit more slowly than he would like — and he anticipates further policy reductions in 2025.
"If the outlook evolves as I have described here, I will support continuing to cut our policy rate in 2025," Waller said in a Wednesday morning speech. "The pace of those cuts will depend on how much progress we make on inflation, while keeping the labor market from weakening."
In the FOMC's December summary of economic projections, in which each participant writes down their expectation for various developments over the next year, two years, three years and long-term, only one committee member called for zero rate cuts in 2025, making Bowman the most hawkish member of the group.
