Federal Reserve Governor Michelle Bowman adopts a dovish stance: The situation in the Middle East has not changed the interest rate cut assessment, and the labor market still requires policy support

Federal Reserve Governor Stephen Miran stated on Wednesday that despite the market turbulence caused by the U.S. military strikes against Iran, he still believes that continuing to cut interest rates is appropriate, as it is too early to assess the substantive impact of the war on the U.S. economy, and he leans towards a 25 basis point cut until reaching a neutral stance.

In an interview with Bloomberg Television, Miran noted that the weekend events have not changed any of his predictions regarding the labor market and inflation. This statement contrasts with the cautious signals released by most officials within the Federal Reserve this week—who generally emphasized that the escalating situation in the Middle East has increased uncertainty in the economic outlook, which the market interpreted as a sign that the Federal Reserve may remain inactive for a longer period.

Oil prices surged significantly following the U.S. strikes on Iran, prompting investors to lower their expectations for the probability of a Federal Reserve rate cut in 2026. Miran's strong stance on rate cuts is a minority voice within the current Federal Reserve, and its influence, along with the subsequent trends in labor market data, will be a focal point for market watchers.

Labor Market Still Needs Monetary Policy Support

Federal Reserve Governor Stephen Miran clearly expressed support for continuing the rate cut path on Wednesday. "I think continuing to act is appropriate," he stated in the interview. He has a notable divergence in assessment of the labor market compared to some of his colleagues.

Before the escalation in the Middle East, several Federal Reserve officials had pointed out signs of stabilization in the labor market and advocated for waiting until inflation further retreats towards the 2% target before considering additional rate cuts. Miran, however, holds the opposite view. He stated:

"Overall, the data from the labor market still provides evidence that it needs more support from monetary policy."

The U.S. Bureau of Labor Statistics will release the monthly employment report for February on Friday. This data is expected to have a direct impact on the policy divergence within the Federal Reserve, and the market will closely monitor whether the labor market performance can support Miran's position.

War Impact Creates Uncertainty, Most Officials Prefer Caution

The U.S. military strikes against Iran have led to a significant spike in oil prices, which quickly transmitted to the financial markets. Investors subsequently adjusted their expectations for the Federal Reserve rate cuts in 2026, with concerns about inflation prospects noticeably rising.

This week, several Federal Reserve officials mentioned the situation in the Middle East in public speeches, generally emphasizing that this event has brought new uncertainty to the economic outlook. The market interpreted this as a signal that the Federal Reserve is inclined to maintain interest rates unchanged and delay rate cuts.

Miran is one of the Federal Reserve officials who has been most explicit on this issue so far. He emphasized that it is too early to determine the substantive impact of the situation on the economy and that policy predictions should not be easily adjusted as a result