Federal Reserve's Two Senior Officials Emphasize: The Battle Against Inflation Is Not Yet Won

Two Federal Reserve officials emphasized last Saturday that the Fed must complete the fight against the surge in prices following the pandemic and achieve the 2% inflation target.

In a panel discussion, Mary Daly, the President of the San Francisco Federal Reserve and a 2027 FOMC voting member, stated that despite significant progress in reducing price pressures over the past two years, inflation remains "alarmingly above our target."

Federal Reserve Governor Adriana Kugler also expressed a similar viewpoint at an event hosted by the American Economic Association in San Francisco.

"Clearly, our work is not done yet," she said. "We have not reached 2%, and our goal is certainly still to achieve that; we know the work is not finished."

Since September of last year, Federal Reserve officials have lowered interest rates by a full percentage point. However, in light of the stagnation in the decline of inflation, they signaled in December that they would adopt a more cautious approach in 2025. It is widely expected that Fed policymakers will maintain rates at the upcoming meeting later this month.

Federal Reserve Chairman Powell stated that further interest rate cuts would require new progress in achieving the 2% inflation target. The Fed's preferred inflation measure increased by 2.4% year-on-year in November last year.

Daly and Kugler, while expressing their determination to lower inflation, also indicated that the Federal Reserve must continue to monitor the state of the labor market. Daly noted that officials might soon face more trade-offs between the two goals (employment and inflation).

So far, the Federal Reserve's efforts to curb inflation have not caused significant damage to the labor market. Although the unemployment rate in the U.S. has risen, it was at a historic low of 4.2% in November last year.

Daly said, "I do not want to see further slowdown in the labor market." She added that this could disrupt the general balance of employment conditions she currently observes.

Therefore, while we absolutely must continue to bring inflation down to the 2% target—we must do this steadfastly—we must do so in a thoughtful manner so that we can also support the goal of 'full employment,'" Daly said.

Kugler reiterated her hope to ensure that the recent "volatility" in inflation data does not persist.