Federal Reserve officials set the tone for future rate cuts: "Balanced", "cautious", and "data-dependent"

After initiating a significant 50 basis point rate cut last month to start a loose cycle, two female Federal Reserve officials have both expressed support for the Fed to continue cutting interest rates in their latest statements, while labeling future actions as balanced, cautious, and data-driven, believing that the dual mission of achieving inflation and employment should be ensured.

Adriana Kugler, a permanent member of the Federal Reserve's Federal Open Market Committee (FOMC) with voting rights, believes that the Fed should continue to focus on lowering inflation, but in a "balanced manner" to achieve a balance with full employment, avoiding "unnecessary" slowdowns in employment and the economy. If the inflation situation changes as she expects, she will support further rate cuts.

Susan Collins, the Boston Fed President who will have FOMC voting rights in 2025, stated that as inflation tends to soften, the Fed is likely to further cut interest rates, needing to maintain the current favorable economic environment. Fed policymakers should use cautious and data-driven rate cuts to help maintain the strength of the U.S. economy.

Kugler: Avoid unnecessary economic and employment slowdowns, focus on inflation risks from hurricanes and events in the Middle East

At a European Central Bank monetary policy meeting held in Frankfurt, Germany on Tuesday, October 8th local time, Kugler said:

"I believe the focus should be on continuing to bring inflation down to 2%, but I also support shifting the focus to the full employment aspect of the FOMC's dual mandate."

Kugler reiterated her "strong support" for the Fed's decision to cut rates by 50 basis points in September, noting signs of cooling in the U.S. labor market. She emphasized the importance of not allowing the labor market to slow significantly or weaken to the point of causing excessive pain. She also pointed out that the September U.S. non-farm payroll report released last Friday showed encouraging progress, indicating resilience in the labor market.

"The labor market remains resilient, and I support taking a balanced approach to the dual mandate of the FOMC so that we can continue to make progress on inflation while avoiding unnecessary slowdowns in job growth and economic expansion."

The dot plot and economic outlook released after the September Fed meeting showed that policymakers expect a total of 50 basis points in rate cuts this year, with 25 basis points each in the November and December meetings. Kugler stated, "If inflation continues to progress as I expect, I will support further rate cuts," but she also highlighted some risk factors.

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

Kugler mentioned that if progress in significantly lowering inflation stalls, it may be necessary to slow down the pace of rate cuts. It is currently unclear at what level the neutral interest rate may be, with the Fed's current policy rate "far above it."

Collins: Maintain the current favorable economic environment, have more confidence in inflation, and increase risks of economic slowdown

On the same Tuesday, Collins stated at a community banker meeting hosted by the Boston Fed that, including last week's "unexpectedly strong" September non-farm payroll report, recent data shows that the overall condition of the US labor market is "good - neither too hot nor too cold." She is now more confident that with a healthy labor market, inflation will "promptly" return to the Fed's target level.

Looking ahead, maintaining the current favorable economic environment will require adjusting the monetary policy stance to avoid unnecessary constraints on demand. A cautious, data-dependent approach to policy normalization will be appropriate, as we balance risks and remain highly focused on the dual mandates authorized by Congress - price stability and full employment.

Collins mentioned that Fed officials at the September FOMC meeting expected a total of 50 basis points of rate cuts later this year, saying:

"I want to emphasize that (Fed's monetary) policy has no preset path, (the Fed) will still cautiously rely on data and adjust as the economy evolves."

Collins stated that the impact of restrictive monetary policy is becoming evident in rate-sensitive industries. As the labor market cools down and economic growth slows, the US economy is now more vulnerable to shocks.

"I am more confident in the downward trajectory of inflation, but the increased risks of the economic slowdown exceeding what is needed to restore price stability have also increased."