Fed Governor Kugler supports caution on rates; Kashkari expects only two or three cuts

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Federal Reserve Governor Adriana Kugler said on Wednesday that there are solid signs of inflation slowing down, but she is not ready to reduce interest rates yet.

In his first major policy address since being confirmed to the Board of Governors in September 2023, Kugler said three factors are coming together to reduce inflationary pressures: slowing wage growth, reducing how often companies raise prices. There have been changes in this and survey indicators that the pace of price increases are expected to continue to decline.

However, with all this in mind, Kugler wants more confidence that the time has come to cut rates.

“I am therefore pleased with the deflationary progress so far and expect it to continue. However, I should emphasize that [Federal Open Market Committee’s] The work is not done yet,” he said in remarks for a speech at the Brookings Institution in Washington, D.C.

“At some point, continued softness in inflation and labor markets may justify lowering the target range for the federal funds rate,” Kugler said. “On the other hand, if progress on deflation stalls, it may be appropriate to keep the target range stable at the current level for a longer period of time to ensure continued progress on our dual mandate.”

The policymaker said he expects consumer spending to rise and core services inflation, except housing, to decline. Additionally, they see signs that companies that raised their prices frequently during the high inflation period of 2021-22 are now doing so less.

Should inflation continue to ease toward the Fed’s 2% target, a rate cut is likely to occur later this year. However, like other Fed officials, Kugler did not commit to a timetable for further aggressive rate cuts, despite market pricing.

“It all depends,” Kluger said on the pace of rate cuts after the Fed steps in. “I don’t think we can end this yet.” He also said that “each meeting is live,” meaning the committee has not ruled out moving forward at any point.

As governor, Kugler, the first Latina to hold the position in Fed history, is a permanent FOMC voter.

“I am pleased with the progress on inflation and expect it to continue, but I will keep a close eye on economic data to verify the sustainability of this progress,” Kugler said.

Fed officials have generally expressed broad satisfaction with the balance of growth and inflation as the central bank seeks to return the economy to stable inflation without stifling growth.

“The drumbeat you’re hearing is a soft landing,” Richmond Fed President Thomas Barkin said during an appearance with the Economics Club of Washington, DC.

“All of these metrics are very strong, and inflation is coming down. So I’m very supportive of being patient to get to where we need to be,” he said. “I see at this point, the trade-off, which is coming into better balance, is still in favor of continuing to work on inflation.”

Earlier in the day, Minneapolis Fed President Neel Kashkari also expressed caution about cutting rates too quickly.

Expecting two or three rate cuts

“Sitting here today, I would say, two or three cuts would be appropriate for me right now,” Kashkari said during CNBC. “Squawk Box” Interview. “But still, I don’t want to prejudge things, but this is, in my mind, based on the data we have so far.”

According to CME Group’s FedWatch measure of futures pricing, the market is pricing in aggressively for the Fed this year, with the first cut coming in May and a total of five quarterly percentage point cuts before the end of the year.

However, many Fed officials are pushing back on that statement. Fed Chairman Jerome Powell almost completely took the March rate cut off the table a week ago and again during a “60 Minutes” interview broadcast Sunday on CBS, saying he expected policymakers to proceed cautiously as they look at broader Measures the progress of inflation against economic growth. ,

“We just need to look at the actual inflation data to guide us,” Kashkari said. “So far, the data has been extremely positive. I expect that to continue. And then the question will simply be, at what speed do we start adjusting rates back down?”

He added that “there are compelling arguments to suggest that we may be in a longer-term, higher-rate environment going forward.”

Kashkari is a non-voting member on the FOMC this year.

Earlier this week, he wrote an essay on the Minneapolis Fed site in which he suggested that the real fed funds rate may not be as high as it appears when adjusted for inflation. In a series of hikes running from March 2022 to July 2023, the FOMC took its benchmark overnight lending rate from near zero to a target range between 5.25%-5.5%, the highest in 23 years.

However, economic data has been solid during that time. Kashkari said the trend suggests interest rates are not putting as much pressure on the economy as was expected. Labor market growth remains strong as consumers continue to spend.

“This is all really good news, and it tells me that perhaps monetary policy is not putting as much pressure on demand as we would otherwise think,” he said. “That gives us more time to get to that data before we lower interest rates. So I think it’s a good problem to have.”

Also on Wednesday, Boston Fed Chair Susan Collins sounded a warning note that recent signs of strength in consumption and employment suggest it may take some time for the economy to reach 2% inflation.

“While encouraged by the progress so far, I will need to see more evidence before considering adjusting the policy stance,” Collins said during a speech at the Boston Economic Club. “As we gain more confidence in the economy achieving the Committee’s goals, and consistent with the final set of FOMC participants’ projections, I believe policy restraint will begin to ease later this year.” It would be the right thing to do.”

However, Collins did not give a timetable for when it would be appropriate to cut rates. Furthermore, he said the path back to the Fed’s inflation target could be “bumpy” and he stressed the importance of a policy stance aimed at defeating inflation.

There are several Fed speakers during the day. This story will be updated to reflect other developments.

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