Federal Reserve Governor Adriana Kugler said on Tuesday that if inflation continues to slow and the job market cools but remains resilient, it would be appropriate to cut interest rates later this year.
Kugler once again emphasized the need to rely on data, especially considering that the risks of inflation and employment have become more balanced. Her comments on the outlook for interest rates are consistent with her remarks made in June.
If the economic situation continues to develop in a favorable direction of accelerating and cooling inflation, with weak employment but maintaining resilience, then I expect it will be appropriate to start relaxing monetary policy later this year, "she said.
Kugler said that the increase in unemployment caused by layoffs will prompt her to vote for an early interest rate cut. But if subsequent reports do not confirm that inflationary pressures continue to ease, then she believes that 'keeping interest rates high for a longer period of time may be appropriate'.
This undoubtedly poured cold water on the market after Federal Reserve Chairman Powell issued a major dovish signal on Monday. Powell just emphasized that the central bank will not wait until the inflation rate reaches 2% to cut interest rates. He said, "If you wait until the inflation rate drops to around 2%, then you may have waited too long
The CME Federal Reserve Watch tool shows that the market generally expects the Fed to cut interest rates for the first time at its September meeting, with a probability of up to 90.9%. There are also expectations in the market that there may be three interest rate cuts this year, each by 25 basis points. For the upcoming July interest rate meeting, it is widely expected that the Federal Reserve will remain inactive.
It is worth mentioning that after Powell's speech, Kugler was not the only one who poured cold water on the market. San Francisco Federal Reserve Bank President Mary Daly emphasized that 'we still have a lot of information to gather before we make any real decisions'.
Over a period of time, policies may experience some degree of normalization, but the likelihood of this normalization depends on the data obtained, not our current situation, "she said.
On the other hand, officials have recently emphasized the importance of achieving a cooling of inflation without significant losses in the job market. Kugler stated that the aspect of maximizing employment in the Federal Reserve's mission has become increasingly important. She added that Federal Reserve officials are closely monitoring these data to identify risks of economic weakness.
At present, the labor market is showing signs of cooling down. Although employment growth remains stable, the unemployment rate is gradually rising. Kugler pointed out that there has been a "substantial rebalancing" in the labor market: a decrease in vacant positions and an increase in the labor force.
This sustained rebalancing indicates that inflation will continue to fall back towards our 2% target, "she said.