Federal Reserve Governor Quarles: "Strongly supports" a 50 basis point rate cut

Federal Reserve Governor Adriana Kugler said she "strongly supports" the Fed's decision last week to cut the borrowing cost by 50 basis points, adding that further rate cuts would be appropriate if inflation continues to ease as expected.

She stated that the ongoing progress in inflation and the easing labor market imply that it is time for the Federal Open Market Committee (FOMC) members to ease policies and closely monitor employment issues.

Speaking at an event prepared for the Harvard Kennedy School in Cambridge, Massachusetts on Wednesday, Kugler said, "The labor market still has resilience, but the FOMC now needs to balance its focus so that we can continue to make progress on anti-inflation while avoiding unnecessary pain and economic weakness as anti-inflation continues to develop along the right path."

She said, "I strongly support last week's decision, and if inflation continues to progress as I expect, I will support further lowering the federal funds rate in the future."

Last week, Kugler and most of her colleagues voted to cut the benchmark interest rate by 50 basis points, a move that exceeded the expectations of many economists. Fed Chairman Powell stated that with slowing hiring and easing price pressures, this significant rate cut is aimed at protecting a strong labor market.

However, policymakers did not commit to a fixed pace, stating that the size of future rate cuts will depend on economic developments. The latest forecasts released last week show diverging opinions on the extent to which the Fed should further ease policies by the end of the year.

The median forecast of officials indicates that the Fed will cut rates by another 50 basis points at the remaining two policy meetings this year. However, among the 19 officials, 7 expect only a 25 basis point cut, and two officials oppose taking any further action in 2024.

During the Q&A session following her speech on Wednesday, Kugler said that some officials may adjust their rate cut timetable if the economic situation changes.

She said, "We don't know what will happen in the next few meetings. Everyone thinks monetary policy is restrictive."

Kugler noted in her speech, "There has been a clear easing in the labor market, with slower hiring and fewer resignations." She added that recent revisions to employment data make it necessary for policymakers to review a range of labor market indicators.

Nevertheless, the unemployment rate remains low by historical standards. Kugler said, "In short, after a period of undersupply, the labor market seems to have rebalanced."

She mentioned that wage growth has slowed and is unlikely to add to price pressures. Kugler said that monthly job growth may be close to or below the so-called "break-even" rate, which is the pace of job growth needed to keep up with population growth and maintain a stable unemployment rate.

She emphasized that officials must now take action to prevent further weakening of the labor market. "Our inflation rate is now moving towards 2%, while the labor market has cooled. It is still in a very good position, but we don't necessarily have to weaken it further ”