Fed’s Kugler says she strongly supported half-point rate cut
Federal Reserve Governor Adriana Kugler said on Wednesday that she “strongly supported” the Fed’s decision to cut the interest rates by a half point last week. Kugler further stated that it will be appropriate to make additional rate cuts if inflation continues to ease as expected, per Bloomberg.
Key quotes
Says she will support additional rate cuts going forward.
Fed should keep focusing on reducing inflation and also shift attention to maximum employment.
Estimates of PCE inflation at 2.2% in August, Core PCE at 2.7% in signs of progress towards goal.
May take some time to feel that prices are back to normal.
There has been a significant moderation in the labor market recently.
Expect spending to grow at a somewhat more moderate pace moving forward.
Fed must now ‘balance. Its focus’ is to continue to make progress on inflation while avoiding unnecessary pain in the economy.
We’re at a place where we don’t want labor market to weaken further.
Makes sense to shift attention to the employment mandate.
Inflation measures excluding housing are near 2%, but that’s not what we target.
We are making very good progress, but not at 2% yet.
I don’t see that we will overshoot on inflation.
It will still take us some time to get to 2% inflation.
We have begun to recalibrate rates.
We need to continue normalizing rates.
Maybe some Fed policymakers would be willing to move expected 2025 rate cuts forward to 2024, or vice versa, depending on data.
We don’t pay a whole lot of attention to the neutral rate because there is a lot of uncertainty about it.
Below 100K monthly job gain would be ‘very low’, must be mindful of potential downward revisions.
The breakeven number for monthly job gains is anywhere from 100K to 240K.
The policy is restrictive.
With disinflation, we need to cut even to just keep where we are in terms of restiveness.
Market reaction
The US Dollar Index (DXY) is trading 0.01% higher on the day at 100.93, as of writing.
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.