Federal Reserve Governor Adriana Kugler expressed strong support for the recent decision to cut interest rates by half a percentage point, signaling that additional rate cuts may be on the horizon if inflation continues to ease.
In remarks delivered at the Harvard Kennedy School, Kugler emphasized the importance of balancing the Fed’s focus on controlling inflation with maintaining a healthy labor market, indicating a shift in monetary policy priorities.
Kugler’s support for the rate reduction stems from ongoing progress in reducing inflation and signs of a cooling labor market.
“The labor market remains resilient… but the FOMC now needs to balance its focus so we can continue making progress on disinflation while avoiding unnecessary pain and weakness in the economy,” she noted.
Last week, the Federal Open Market Committee (FOMC) cut its benchmark interest rate by 50 basis points, a larger reduction than many had anticipated. According to Kugler, this decision was aimed at supporting the labor market as hiring slows and price pressures ease. Federal Reserve Chair Jerome Powell has also highlighted the importance of protecting jobs while continuing to manage inflation.
Despite the rate cut, future moves by the Fed will depend on economic data, particularly regarding inflation and employment. Kugler indicated that if inflation continues to decline as expected, she would support additional cuts to borrowing costs. The FOMC’s latest projections suggest a variety of views among policymakers on how much further rates should be cut by year’s end. While the median projection anticipates another 50 basis points in reductions, some officials are calling for smaller cuts or no further action at all.
Kugler also highlighted the significant moderation in the labor market, including slower hiring and fewer job quits, despite the unemployment rate remaining low by historical standards. She noted that while the job market had been overheated as demand for workers aligns more closely with supply.
“The labor market appears to have rebalanced,” Kugler said.
The broader economic outlook remains solid, with US gross domestic product (GDP) growing at an estimated 2% annual rate for 2024. However, Kugler pointed to slowing consumer spending and rising credit card balances as signals that economic activity may moderate in the coming months.
Kugler’s remarks underscore the Fed’s ongoing commitment to its dual mandate of price stability and maximum employment. The focus now, she emphasized, is on balancing these priorities as inflation continues to decline, while ensuring the economy avoids unnecessary weakness.
With input from Bloomberg and Federal Reserve.
