Federal Reserve Governor: Will support cutting interest rates as soon as possible if the unemployment rate rises due to layoffs

Federal Reserve Governor Kuggler said, if inflation continues to slow and the job market cools but remains resilient, then a rate cut later this year would be appropriate.

Kuggler emphasized the need to rely on data, especially as inflation and employment risks become more balanced. Her comments on interest rate prospects echo those she made in June.

Speaking at an event hosted by the National Business Economics Association, Kuggler said, "If economic conditions continue to evolve favorably, that is, if inflation cools rapidly, as indicated by inflation data over the past three months, and if the job situation slows down while remaining resilient, I expect that it will be appropriate to begin easing monetary policy later this year."

She mentioned that if the unemployment rate rises due to layoffs, she would lean towards supporting a rate cut as soon as possible. Similarly, if subsequent reports do not confirm a continued easing of inflation pressures, she believes that "maintaining stable rates for a longer period may be appropriate."

Although most Federal Reserve officials, including Powell, have not provided specific guidance on the timing of a rate cut, they have strengthened signals that the Fed is approaching a rate cut. Futures markets indicate that investors are betting on a rate cut in September. It is widely expected that officials will hold steady at the meeting on July 30th and 31st.

In discussions following her speech, Kuggler stated that the Fed's mission to achieve full employment has become "more important." She added that Fed officials are "extremely closely" monitoring data to guard against the risk of economic weakness.

Kuggler pointed out that the labor market is undergoing a "significant rebalancing," reflected in reduced job vacancies and an expanding workforce. She said, " This ongoing rebalancing indicates that inflation will continue to decline towards our 2% target."

Kuggler's speech focused primarily on the challenges facing economic measurements, including declining response rates to government surveys and incomplete measurements of the service sector economy. She noted that the Fed is utilizing data from the private sector's "explosive growth," including restaurant reservation data, credit card transactions, and debit card transactions.

The U.S. Department of Labor recently announced that due to budget constraints, it will reduce the sample size of the household survey in the monthly employment report next year, which provides the basis for statistics such as the unemployment rate. Commissioner Erika McEntarfer of the Labor Department pointed out that there is a "real risk" of declining quality, especially with a significant decrease in response rates in recent years.

Kuggler took office in September 2023, having previously served as the U.S. Executive Director at the World Bank Group and Chief Economist at the Labor Department