US Monetary Policy - It is still not clear who exactly is crying Wolf on macro risks

US monetary policy is shaped not only by the FOMC statement, but also by the minutes and the speeches delivered by Federal Reserve members. That is where a visible split has emerged. Chair Jerome Powell has stressed the inflation risk, while Governor Michelle Bowman is more worried about jobs. Who is really crying wolf on macro risks?

What Jerome Powell said

In his first address after the September 2025 policy decision, Jerome Powell signaled that the recent 25-bps rate cut could be a one-off. He suggested policy was now closer to neutral, implying limited room for further cuts.

Powell’s core message: inflation is the bigger risk. He views the recent tilt toward higher unemployment as temporary, and argues that premature easing could revive price pressures. Markets sold off the day after his remarks, reading them as a pushback against hopes of a cutting cycle.

Michelle Bowman differs

In contrast, Governor Michelle Bowman’s Kentucky speech focused on the labor market. Headline unemployment at 4.3% looks benign, but she highlighted two undercurrents:

• Hiring momentum has cooled: Monthly non-farm payroll additions are running at a fraction of equilibrium levels.
• Labor supply is softening: The unemployment rate is not climbing faster because labor force participation has eased, while wage growth remains subdued.

Bowman’s point: one negative shock could tip a fragile jobs market, making timely support more urgent than headline data suggests.

Data points both ways

Both camps can point to the numbers.

Powell’s inflation case

• PCE inflation drifted up from around 2.3% in April to roughly 2.7% by August, with core near 2.9% - still above the 2% target.
• Growth rebound: After a Q1 contraction, Q2 GDP growth rebounded strongly, supporting the view that earlier weakness was temporary.

Bowman’s jobs case

• Payroll gains cooled: Hiring has slowed notably, especially in cyclical industries.
• Wage growth moderated: Softer wages point to weaker household income momentum.
• Participation wobbles: A flatter participation rate can mask rising job stress.

The picture is mixed: inflation progress has stalled while job creation has downshifted.

It is more about interpretation

The gap is less about facts and more about how tariffs and cost shocks are interpreted.

• Powell’s focus: Tariffs lift import costs, risking stickier inflation. If inflation proves persistent, the Fed needs policy space; cutting too soon could backfire.
• Bowman’s focus: Tariffs and uncertainty curb hiring and capex. With payrolls slowing and wages cooling, job fragility deserves priority support.

Both views can be right. Tariffs can raise prices and also weigh on hiring. Timing and magnitude are the unknowns.

What it could mean for rates

If inflation remains sticky, Powell’s one-and-done approach gains traction and further cuts may pause. If the labor data weakens further - especially in breadth and duration - Bowman’s case for additional easing strengthens.

• Watch inflation breadth: Core services, shelter, and supercore trends.
• Watch labor breadth: Diffusion indexes, hours worked, and revisions to payrolls.
• Watch demand signals: Credit conditions, delinquency trends, and consumer sentiment.

Policy is likely to stay data-dependent, with a higher bar for quick follow-on cuts unless jobs meaningfully deteriorate.

Conclusion: who is crying Wolf?

Powell warns that inflation risks are not fully behind us; Bowman warns that jobs may be more fragile than the headlines suggest. The truth may sit between these poles - both risks are real, but their persistence is uncertain. It is also possible that neither risk escalates if growth cools gently and inflation drifts lower. Until the data breaks decisively, the debate - like the wolf - may stay more heard than seen.

FAQs

1. Why is Jerome Powell cautious about more rate cuts?

Because core inflation remains above target and tariffs can add persistent price pressure. Cutting too soon risks re-accelerating inflation.

2. What data supports Michelle Bowman’s concern on jobs?

Slower non-farm payroll growth, softer wage gains, and a labor participation profile that can hide rising slack point to a more fragile jobs market.

3. How do tariffs affect inflation and employment?

Tariffs raise input and import costs (inflationary) while also creating uncertainty that can dampen hiring and investment (employment risk).

4. What should investors watch next?

Core PCE trends, payroll breadth and revisions, hours worked, services inflation, and any tightening in credit conditions that could squeeze demand.

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Disclaimer: This article is for informational purposes only and reflects publicly available data and commentary on U.S. monetary policy. It should not be considered investment, trading, or financial advice.