Federal Reserve Governor: If inflation develops as expected, support further rate cuts

Federal Reserve Governor Kuggel said, the Fed should continue to focus on lowering the inflation rate to the target of 2%, but should take a "balanced approach" to avoid "undesirable slowdowns" in job growth and economic expansion.

Kuggel said at the monetary policy meeting held by the European Central Bank in Frankfurt on Tuesday, "While I believe the emphasis should continue to be on lowering the inflation rate to 2%, I support shifting the focus to the full employment aspect of the Fed's dual mandate of the Federal Open Market Committee (FOMC)."

Kuggel reiterated her "strong support" for the Fed's decision to cut the benchmark interest rate by 50 basis points last month. Fed Chairman Powell said the significant rate cut was aimed at protecting a strong labor market as hiring slowed and price pressures eased.

According to the dot plot released by the Fed after the September interest rate meeting, officials expect the Fed to cut rates by another 50 basis points at the remaining two meetings in 2024. Kuggel said that if "inflation progresses as expected," she would support further rate cuts, but she pointed out several risk factors.

"I am closely monitoring the impact of hurricanes and geopolitical events in the Middle East on the economy, as these events could affect the economic outlook for the United States," Kuggel said. "If the downside risks to employment intensify, it may be necessary to more quickly shift policy to a neutral stance."

She said, if inflation progress stalls, it may be necessary to slow the pace of rate cuts, "if inflation progresses as I expect, I will support further reductions in the federal funds rate to gradually move towards a more neutral policy stance over time."

Currently, the market expects the Fed to cut rates by 25 basis points in November.

Kuggel's remarks come ahead of the latest inflation data to be released later this week. The Consumer Price Index (CPI) to be released on Thursday is expected to show that core inflation remained at 3.2% year-on-year in September, unchanged from August.

Kuggel also discussed why the United States has experienced a stronger recovery than other advanced economies after the COVID-19 pandemic, while lowering inflation. She said, part of the reason is tight monetary policy and some positive changes on the supply side, such as improvements in total factor productivity, growth in labor productivity, and an increase in labor supply.

Kuggel was appointed as a Federal Reserve Governor in September 2023. Prior to that, she served as the U.S. Executive Director at the World Bank. She also served as the Chief Economist at the U.S. Department of Labor from 2011 to 2013