Federal Reserve Governor Coogle: Slowing inflation and further weakness in the labor market will pave the way for interest rate cuts

According to the financial news app Zhitong Finance, Adriana Kugler, a member of the Federal Reserve Board, stated on Tuesday that if more progress could be made in reducing inflation and further signs of weakness in the U.S. labor market emerge, it will pave the way for a rate cut later in 2024.

After experiencing volatility at the beginning of 2024, the inflation rate has been declining in recent months. Kugler attributed the slowdown in inflation to the easing of supply chain blockages during the pandemic, while higher interest rates and decreasing excess savings have suppressed consumer demand.

At the same time, the labor market has cooled down from the overheated state in 2022 and 2023. Kugler pointed out that slowing wage growth, reduced job vacancies, and increased labor supply due to immigration are positive developments.

"This ongoing rebalancing indicates that inflation will continue to decline towards our 2% target," Kugler said. "If economic conditions continue to develop favorably, with inflation decreasing faster as shown by the inflation data of the past three months, and the job market remains soft but resilient as indicated by recent employment reports, I expect it to be appropriate to start easing monetary policy later this year."

Kugler has been a member of the Federal Reserve Board since September 2023 and is also a voting member of the Federal Open Market Committee (FOMC).

Since July 2023, the FOMC has maintained the target range for the federal funds rate at 5.25% to 5.50%. On Tuesday, pricing in the interest rate futures market implied a high likelihood that the committee will cut the federal funds rate by 0.25 percentage points at the September meeting.

Kugler's remarks are in line with those of Federal Reserve Chairman Powell on Monday and in his semiannual testimony before Congress last week.

She noted that interest rate decisions will depend on upcoming economic data and stated that assessments will be made at each meeting. "If the labor market cools excessively, the unemployment rate continues to rise driven by layoffs, I believe we should cut rates earlier. Conversely, if the upcoming data fails to prove that inflation is steadily moving towards the 2% target, it may be necessary to keep rates at the current level for a longer period."

In response to a question from Ellen Zentner, Chief U.S. Economist at Morgan Stanley, Kugler stated that officials are "now in a different environment" after focusing almost exclusively on fighting inflation in the Fed's dual mandate in recent years.

She pointed out that inflation is moving towards the 2% target. At the same time, the current labor market conditions are similar to those in 2019, before the COVID-19 pandemic. Kugler said, "We do not want the labor market to cool excessively." She noted that further softening may increasingly come from layoffs rather than a reduction in job vacancies.

Kugler declined to comment on the possible actions of the FOMC after the first rate cut, emphasizing that policy is not a predetermined path, and the committee will assess at each meeting