FEDERAL Reserve (Fed) Governor Adriana Kugler said on Tuesday she strongly supported the US central bank’s recent interest rate cut and would support further reductions if inflation continued to ease, which she expects.
This came as Federal Reserve Bank of New York President John Williams said that it would be appropriate again for the US central bank to reduce rates “over time,” after September’s big half percentage point rate cut, in an interview published by the Financial Times (FT) on Tuesday.
“While I believe the focus should remain on continuing to bring inflation to 2 percent, I support shifting attention to the maximum-employment side of the FOMC’s dual mandate as well,” Kugler said, referring to the US rate-setting Federal Open Market Committee, of which she is a member.
“The labor market remains resilient, but I support a balanced approach to the FOMC’s dual mandate so we can continue making progress on inflation while avoiding an undesirable slowdown in employment growth and economic expansion.”
Kugler’s prepared remarks at a European Central Bank (ECB) conference in Frankfurt, Germany, were mostly about the shared global reasons for the worldwide bout of inflation that followed the pandemic and the range of experiences across regions as inflation began to recede.
The Fed lowered rates last month, a move Kugler said she strongly supported, following similar decisions by other central banks including the ECB.
A stronger US economy allowed the FOMC to be “patient about the timing” in reducing its policy rate and focus on bringing inflation down, Kugler said.
“If progress on inflation continues as I expect, I will support additional cuts in the federal funds rate to move toward a more neutral policy stance over time,” Kugler said.
Kugler said she was closely monitoring the economic effects of Hurricane Helene and geopolitical events in the Middle East.
“If downside risks to employment escalate, it may be appropriate to move policy more quickly to a neutral stance,” Kugler said.
“Alternatively, if incoming data do not provide confidence that inflation is moving sustainably toward 2 percent, it may be appropriate to slow normalization in the policy rate.”
Last week, Fed Chairman Jerome Powell indicated the bank would likely stick with quarter percentage point interest rate cuts and was not “in a hurry” after new data boosted confidence in economic growth and consumer spending.
Williams, who holds a permanent vote on the rate-setting FOMC, echoed Powell’s comments, telling the FT he didn’t see the September move “as the rule of how we act in the future.”
“I personally expect that it will be appropriate again to bring interest rates down over time,” he told the FT.
“Right now, I think monetary policy is well positioned for the outlook, and if you look at the SEP (Summary of Economic Predictions) projections that capture the totality of the views, it’s a very good base case with an economy that’s continuing to grow and inflation coming back to 2 percent.”
On Friday, government data showed an unexpectedly strong job market, which called into question widespread concerns the labor sector was weakening.
The payrolls report prompted a repricing of near-term Fed rate cuts. Traders are now pricing in an 87-percent chance of a quarter point rate cut next month, and have taken out any chance of an outsized half-point cut, according to CME’s FedWatch Tool.
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