MNI: Fed's Kugler Supports More Cuts If Disinflation Continues
MNI (WASHINGTON) - Federal Reserve Governor Adriana Kugler said Tuesday she favors lowering interest rates if inflation continues to fall as expected and added she's closely monitoring the economic effects from Hurricane Helene and geopolitical events in the Middle East for their impact on the U.S. economy.
Significant progress in reducing inflation and a cooling in the labor market means the time has come to begin easing monetary policy, she said.
"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. 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," she said in remarks prepared for a European Central Bank conference in Frankfurt.
"If downside risks to employment escalate, it may be appropriate to move policy more quickly to a neutral stance. Alternatively, if incoming data do not provide confidence that inflation is moving sustainably toward 2%, it may be appropriate to slow normalization in the policy rate."
She did not mention the surprisingly strong September jobs report that led to a market repricing on the Fed's policy path over the past few days. (See: MNI: Job Boom Means Slower Fed Cuts, Pause Possible - Ex-Staff)
GLOBAL INFLATION TRENDS
Kugler explored the global drivers of inflation and disinflation after Covid as well as varying outcomes for growth among advanced economies.
Restrictive U.S. monetary policy and supply-related improvements helped bring down inflation and underpinned the strongest recovery among advanced economies, she said. Among the favorable trends boosting productivity were greater business dynamism and investments in artificial intelligence, as well as a substantial reallocation of workers to more productive jobs. Immigration also expanded the labor supply, she noted.
Pandemic-era inflation was a global phenomenon, but the pace of disinflation has varied across countries due in large part to different trajectories for services inflation, especially housing, she said. While U.S. housing inflation has been running higher than the wage-driven non-housing component, the reverse is true in the euro area, she said.