Fed's Kugler: Inflation to slow further and result in rate cuts this year


Federal Reserve (Fed) Governor Adriana Kugler said on Wednesday that she believes inflation will continue to fall this year and pave the way for the central bank to cut interest rates, per Reuters

Key quotes

“My policy rate expectation is consistent with March FOMC meeting policymaker projections.”

“If disinflation and labor market conditions proceed as I am currently expecting, then some lowering of the policy rate this year would be appropriate.”

“Expect the disinflationary trend to continue.”

“Policy is currently restrictive, and my baseline expectation is that disinflation will continue without a broad economic slowdown.”

“Such an outcome is not assured.”

“Inflation progress has sometimes been bumpy.”

“Annual core PCE at 2.8% represents 'considerable progress' but is still 'meaningfully above' Fed's 2% target.”

“Data on new tenant rent agreements suggest that housing inflation broadly will continue to cool.”

“Continued disinflation will indeed require further progress in housing and non-housing services.”

“Labor market has moved into better balance.”

“Suspect strong population growth 'helps resolve the puzzle' of labor market growth and strong consumption even as inflation eases.”

“Important that wage growth be consistent with 2% inflation over time; US is moving back toward that kind of wage growth.”

“Anchored inflation expectations are evident in consumer and business surveys.”

“Expect consumption growth to slow some this year.”

“Consumer spending was soft in January and February, suggesting we are on track for lower consumption growth in q1 vs second half of 2023.”

“Expect GDP growth this year to be solid but slower than 2023 pace of 3.1%.”

“My baseline expectation is that further disinflation can be accomplished without a significant rise in unemployment.”

“Appears supply networks are adapting to port of Baltimore disruption.”

“New businesses are creating a lot of new jobs.”

“Around 150,000 jobs a month have come from new businesses.”

Market reaction 

At the press time, the US Dollar Index (DXY) was down 0.01% on the day to trade at 104.23.

 

 

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger 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 may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining 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 named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck 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 in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually 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 principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.


 

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