Fed Governor Kugler noted that she "strongly supported" the Fed's decision to cut interest rates by 50 basis points last month, with the focus still on inflation.
Federal Reserve Governor Kugler said the Fed should remain committed to getting inflation down to its 2% target but take a "balanced approach" to avoid an "undesirable slowdown" in job growth and economic expansion.
“While I believe the focus should continue to be on getting inflation down to 2%, I support shifting the focus to the full employment side of the dual mandate of the Federal Open Market Committee,” Kugler said at the ECB’s monetary policy conference in Frankfurt on Tuesday.
Kugler reiterated that she “strongly supports” the Fed’s decision last month to cut its benchmark borrowing rate by 50 basis points. Fed Chairman Jerome Powell said the big rate cut was aimed at protecting a strong labor market as hiring slows and price pressures ease.
According to the dot plot released by the Federal Reserve after its September meeting, officials expect the Fed to cut interest rates by another 50 basis points at the two remaining meetings in 2024. Kugler said she would support further rate cuts if "inflation progresses as expected," but she pointed out several risks.
“I am closely monitoring the economic impact of hurricanes and geopolitical events in the Middle East as these events could affect the U.S. economic outlook,” Kugler said. “If downside risks to employment intensify, a more rapid shift in policy toward a neutral stance may be warranted.”
She said that if inflation progress stalls, the pace of rate cuts may need to be slowed, and "if inflation progresses as I expect, I would support further reductions in the federal funds rate in order to move to a more neutral policy stance over time."
Currently, the market currently expects the Federal Reserve to cut interest rates by 25 basis points in November.
Kugler's comments come ahead of the release of the latest inflation data later this week. The Consumer Price Index (CPI) due on Thursday is expected to show core inflation held at 3.2% year-on-year in September, unchanged from August.
Kugler also talked about why the U.S. has experienced a stronger recovery from the COVID-19 pandemic than other advanced economies, while also lowering inflation. She said this was partly due to tight monetary policy and some positive changes on the supply side, such as increases in total factor productivity, labor productivity growth, and an increase in the labor supply.
Kugler will take office as a Fed governor in September 2023. Previously, she served as U.S. executive director at the World Bank. She also served as chief economist at the U.S. Department of Labor from 2011 to 2013.
