Future Fed cuts need balanced approach says Kugler

Federal Reserve Governor Adriana Kugler said the US central bank should keep its focus on bringing inflation back to its 2% target, though with a “balanced approach” that avoids an “undesirable” slowdown in employment growth and economic expansion.

“While I believe the focus should remain on continuing to bring inflation to 2%, I support shifting attention to the maximum-employment side of the FOMC’s dual mandate as well,” Kugler said Tuesday in Frankfurt, referring to the rate-setting Federal Open Market Committee.

Kugler repeated that she “strongly supported” the FOMC’s decision last month to cut its benchmark lending rate by a half percentage point. Fed Chair Jerome Powell said the outsize cut was meant to protect the strong labor market as hiring slowed and price pressures eased.

The median outlook from policymakers, based on projections released after their September gathering, calls for another half point of rate cuts over the Fed’s remaining two meetings in 2024. Kugler said she would support additional reductions “if progress on inflation continues as I expect,” though she pointed to a number of risk factors.

“I am closely monitoring the economic effects from Hurricane Helene and from geopolitical events in the Middle East, since these could affect the US economic outlook,” Kugler said at a monetary policy conference at the European Central Bank. “If downside risks to employment escalate, it may be appropriate to move policy more quickly to a neutral stance.”

Where that neutral rate might be is unclear, she said, adding that the Fed is “way above it.”

If progress on inflation — which has seen a “serious reduction” — stalls, it may be appropriate to slow down the pace of rate cuts, she said.

Asked about last week’s surprisingly strong US jobs report, Kugler said that the “very healthy level of jobs creation” is “very welcome.” Still, she cautioned against focusing on individual prints, saying that “several metric point toward labor-market cooling” and highlighting that the Fed weighs “all the factors.”

Kugler spoke about why the US experienced a stronger recovery following the coronavirus pandemic than other developed economies while also lowering inflation. Part of the story, she said, was tight monetary policy and some positive shifts in supply, such as a pickup in total factor productivity, growth in labor productivity and a pickup in labor supply.

Kugler took office as a Fed Board Governor in September 2023. Previously she served as the US executive director at the World Bank Group. She was also chief economist at the US Department of Labor from 2011 to 2013.