MNI: Fed’s Kugler-Rate Cuts May Be Appropriate ‘At Some Point’

There’s good reason to believe U.S. inflation will keep falling toward the Fed’s 2% goal as wage growth moderates and firms’ price-setting normalizes, making it appropriate "at some point" to cut interest rates, Federal Reserve Governor Adriana Kugler said Wednesday.

“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. On the other hand, if progress on disinflation stalls, it may be appropriate to hold the target range steady at its current level for longer to ensure continued progress on our dual mandate,” she said in remarks prepared for the Brookings Institution, her first public comments since taking office in September.

She made no specific comment on the timing of the first cut.

Kugler offered a fairly sanguine outlook for the prospect of further disinflation, citing ongoing moderation of wage growth as the labor market comes into better balance, less aggressive price-setting by firms and well anchored expectations for inflation. (See: MNI: Fed Will Wait On Rate Cuts In Strong Economy-Stevenson)

“I am pleased by the progress on inflation, and optimistic it will continue, but I will be watching the economic data closely to verify the continuation of this progress,” said Kugler, the first ever Latina governor on the Fed’s board. “Having lived in Colombia during periods of high and volatile inflation, I know firsthand how destructive it can be.”

She said upside risks to inflation include the possibility that consumer spending will remain more resilient than expected, as it did last year, as well as geopolitical risks ranging from the war in Ukraine and conflict in the Middle East.

These “could contribute to higher commodity prices and disrupt global trade, in turn pushing up goods inflation in the U.S.,” Kugler said.