Fed’s Kugler Says Lower Rates This Year Likely Appropriate


(Bloomberg) — Inflation could moderate further without a significant cost to jobs or economic growth this year, setting the stage for “some” cuts in borrowing costs, Federal Reserve Governor Adriana Kugler said.

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Weaker consumer spending should help slow economic growth to below last year’s 3.1% pace, Kugler said, and demand for workers is easing as well.

“With demand growth cooling, given the backdrop of solid supply, my baseline expectation is that further disinflation can be accomplished without a significant rise in unemployment,” Kugler said in remarks at Washington University in St. Louis on Wednesday.

“If disinflation and labor market conditions proceed as I am currently expecting, then some lowering of the policy rate this year would be appropriate,” she added.

The Fed governor noted that underlying inflation — as measured by the central bank’s preferred gauge — rose at a 2.8% pace in February from a year earlier, a pace she called “meaningfully above” policymakers’ 2% target.

The Federal Open Market Committee held interest rates steady last month. Officials narrowly maintained their outlook for three interest-rate cuts this year, even as key inflation metrics have picked up in 2024.

Federal Reserve Chair Jerome Powell said Wednesday that policymakers will wait for clearer signs of lower inflation before cutting interest rates, a view echoed by Fed Governor Christopher Waller last week.

“On inflation, it is too soon to say whether the recent readings represent more than just a bump,” Powell said. “We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2%.”

Read More: Powell Says Fed Has Time to Assess Data Before Deciding to Cut

The Fed will get another update on the health of the job market Friday with the release of the monthly employment report, which is expected to show a gain of 213,000 jobs in March.

Fed officials in March were split on how aggressive rate cuts will be this year. The central bank’s “dot plot” showed 10 officials forecast three or more quarter-point cuts this year, while nine anticipated two or fewer.

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