Federal Reserve Governor Adriana Kugler said Wednesday that inflation is showing solid signs of slowing, but that she is not yet ready to start lowering interest rates.
In her first major policy speech since being confirmed to the Board of Governors in September 2023, Kugler said three factors are converging to ease inflationary pressures: moderating wage growth, changes in how often companies raise prices and survey indicators on the pace of price increases. It is expected to continue falling.
With all this in mind, however, Kugler wants to be more confident that it is time to cut rates.
“So I am pleased with the disinflationary progress so far and hope it continues. However, I must emphasize that the [Federal Open Market Committee’s] The work is not done yet,” he said in remarks delivered in a speech to the Brookings Institution in Washington, DC.
“At some point, the continued cooling of inflation and labor markets may make it appropriate to reduce the target range for the federal funds rate,” Kugler added. “On the other hand, if progress on disinflation stalls, it may be appropriate to keep the target range stable at its current level for longer to ensure continued progress in our dual mandate.”
The authority added that it expects consumer spending to grow and inflation of basic services, excluding housing, to decline. Additionally, he sees signs that companies that raised their prices frequently during the big inflation surge of 2021-22 are doing so less now.
If inflation continues to retreat toward the Federal Reserve’s 2% target, cuts are likely later this year. However, like other Federal Reserve officials, Kugler did not commit to a timetable, even though the market anticipates aggressive reductions in the future.
“It all depends,” Kluger said of the pace of rate cuts once the Federal Reserve takes action. “I don’t think we can report it now.” He added that “all meetings are live,” meaning the committee has not ruled out moving at any point.
As governor, Kugler, the first Latina to hold the position in the history of the Federal Reserve, is a permanent FOMC voter.
“I am pleased with the progress on inflation and am optimistic that it will continue, but I will be watching the economic data closely to verify the continuation of this progress,” Kugler said.
Federal Reserve officials have generally expressed broad satisfaction with the balance between growth and inflation as the central bank seeks to bring the economy back to stable inflation without halting growth.
“That drumbeat you hear is the soft landing,” Richmond Fed President Thomas Barkin said during an appearance at the Economics Club in Washington, DC.
“All of these metrics are very strong and inflation is coming down. That’s why I’m very supportive of having patience to get to where we need to get,” he added. “I see that right now the compensation, which is becoming better balanced, is still to continue working on inflation.”
Hours earlier, Minneapolis Federal Reserve President Neel Kashkari also expressed caution about cutting rates too quickly.
Two or three rate cuts expected
“Sitting here today, I would say two or three cuts would seem appropriate to me at this point,” Kashkari said during an interview on CNBC’s “Squawk Box.” “But again, I don’t want to prejudge things, but that’s my instinct, based on the data we have so far.”
Markets have been pricing in an hawkish path this year for the Federal Reserve, with the first taper occurring as early as May and five total cuts of a quarter percentage point occurring before the end of the year, according to the CME’s FedWatch measure of futures prices. Group.
However, several Federal Reserve officials have been rejecting that narrative. Federal Reserve Chairman Jerome Powell a week ago and again during a “60 Minutes” interview that aired Sunday on CBS virtually took a March cut off the table entirely and said he hopes policy makers Policies act carefully when measuring the progress of inflation against broader economic growth. .
“We just need to look at the actual inflation data to guide us,” Kashkari said. “So far, the data has been resoundingly positive. I expect that to continue. And then the question will simply be: at what pace do we begin to adjust rates back down?”
He added that there are “compelling arguments to suggest that we could be in a longer, higher-rate environment in the future.”
Kashkari is a non-voting member this year on the FOMC.
Earlier this week, he wrote an essay that was posted on the Minneapolis Federal Reserve site suggesting that the real federal funds rate, when adjusted for inflation, may not be as high as it seems. In a series of increases stretching from March 2022 to July 2023, the FOMC took its benchmark overnight borrowing rate from near zero to a target range between 5.25% and 5.5%, the highest high in 23 years.
However, economic data has remained strong during that time. Kashkari said the trend indicates that interest rates may not be putting as much pressure on the economy as expected. Labor market growth has remained strong as consumers continue to spend.
“That’s all very good news, and that tells me that maybe monetary policy isn’t putting as much downward pressure on demand as we might think,” he said. “That gives us more time to access that data before we start reducing interest rates. So I think it’s a good problem to have.”
Also on Wednesday, Boston Federal Reserve President Susan Collins added to the cautious tone, saying that recent signs of strength in consumption and employment show it could be some time before the economy stabilizes at a inflation rate of 2%.
“While I am encouraged by the progress to date, I will need to see more evidence before considering adjusting the policy stance,” Collins said in a speech to the Boston Economic Club. “As we become more confident that the economy will achieve the Committee’s goals, and consistent with the latest set of projections from FOMC participants, I think it will likely be appropriate to begin easing policy later this year.”
However, Collins did not set a timetable for when it might be appropriate to reduce rates. Additionally, he noted that the road back to the Fed’s inflation target could become “bumpy” and emphasized the importance of a policy determined to defeat inflation.
There are several Fed speakers throughout the day. This story will be updated to reflect further developments.