Federal Reserve Governor Adriana Kugler said Wednesday that she “strongly supported” the Fed’s decision to cut interest rates by half a point last week. Kugler also said that additional rate cuts will be appropriate if inflation continues to decline as expected, according to Bloomberg.
Key quotes
Says he will support additional rate cuts in the future.
The Fed must continue to focus on reducing inflation and also shift attention to maximum employment.
PCE inflation estimates at 2.2% in August, core PCE at 2.7% in signs of progress toward target.
It may take some time to feel that prices have returned to normal.
There has been a significant moderation in the labor market recently.
Spending is expected to grow at a somewhat more moderate pace in the future.
The Fed must now ‘balance.’ Its focus’ is to continue making progress on inflation while avoiding unnecessary pain to the economy.
We are at a place where we do not want the labor market to weaken any further.
It makes sense to shift attention to the employment mandate.
Inflation measures excluding housing are close to 2%, but that is not what we are targeting.
We are making very good progress, but we are not yet at 2%.
I don’t see us overcoming inflation.
It will still take us some time to reach 2% inflation.
We have started to recalibrate the rates.
We need to continue normalizing rates.
Perhaps some Fed officials would be willing to move up expected rate cuts from 2025 to 2024, or vice versa, depending on the data.
We don’t pay much attention to the neutral rate because there is a lot of uncertainty about it.
A monthly employment gain below 100K would be ‘very low’, we must take into account possible downward revisions.
The break-even number for monthly employment earnings is between 100K and 240K.
The policy is restrictive.
With disinflation, we need to cut even just to stay where we are in terms of concern.
Market reaction
The US Dollar Index (DXY) is trading 0.01% higher on the day at 100.93, as of writing.
The Fed FAQs
Monetary policy in the United States is directed by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and to promote full employment. Its main tool for achieving these goals is to adjust interest rates. When prices rise too quickly and inflation exceeds the Fed’s 2% target, the Fed raises interest rates, increasing borrowing costs throughout the economy. This translates into a strengthening of the US Dollar (USD), as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates to encourage borrowing, which weighs on the greenback.
The Federal Reserve (Fed) holds eight meetings a year, at which the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC consists of twelve Federal Reserve officials: the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the eleven regional Reserve bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy called Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit into a jammed financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy high-quality bonds from financial institutions. QE typically weakens the US dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the capital of maturing bonds in its portfolio to buy new bonds. It is usually positive for the value of the US dollar.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
