Federal Reserve Governor Kugler said policymakers must focus on the Fed's inflation and employment goals simultaneously, noting that the labor market is cooling and the pace of inflation falling toward the Fed's 2% target has slowed.

“The combination of continued but slowing disinflationary trends and a cooling labor market means we need to continue to focus on both aspects of our mission,” Kugler said in prepared remarks Thursday.

“If there were any risk of a deceleration in progress or a reacceleration of inflation, a pause would be appropriate. However, if the labor market slowed abruptly, gradual reductions in the policy rate should continue,” she said.

The Fed cut borrowing costs by 25 basis points last week, following a bigger rate cut of 50 basis points in September.

In comments this week, several Federal Reserve policymakers urged caution about further rate cuts given the strong economy, lingering inflation concerns and widespread uncertainty.

While Kugler said slowing wage growth and anchored inflation expectations could allow price growth to slow further, she noted the risk that stubborn inflation in housing and other categories could hinder further progress in the disinflation process.

Data released on Wednesday showed that the core CPI index (a measure of underlying inflation) excluding food and energy rose 0.3% month-on-month for the third consecutive month. The overall CPI growth rate accelerated to 2.6% year-on-year.

Given these data, Kugler said she expects the Fed’s preferred inflation measure, the personal consumption expenditures (PCE) price index, to rise 2.3% year-on-year, and core PCE to rise 2.8% year-on-year. October PCE data will be released later this month.

Much of Kugler’s speech focused on central bank independence and its importance to achieving good economic outcomes.

“In other economies, transparency is also seen as fundamental to monetary policy independence, which is increasingly seen as leading to better policy decisions that are more focused on the long-term health of the economy,” she said.

Her comments come amid questions about whether a Trump win will try to limit the Fed's independence. Fed Chairman Jerome Powell made clear last week that he would not resign if Trump asked him to, and insisted that the new president would not have the power to fire him or other senior Fed leaders.

Article forwarded from: Jinshi Data