Federal Reserve Governor Kugler: "Adopt a cautious stance on recent inflation fluctuations, job market remains resilient"

Federal Reserve Board member Adriana Kugler said on Friday that the Fed is uncertain about the economic performance in 2025 and will let upcoming economic data guide the direction of monetary policy. Kugler, in an interview, stated that given the Fed's prediction last month of a reduced rate cut in 2025, "there is a view that we can take it slow, slow down the pace, be more gradual, while watching the data to see if the tough inflation pressures will start to ease again." However, she noted that if there are signs of weakening in the flexible labor market, "we will be ready to take different actions in terms of monetary policy." The official added, "We are continuously reacting to what is happening in the economy and seeing what is unfolding before us." Kugler mentioned in the interview that the economic situation is good, even though the job market has cooled off, it still remains resilient with the unemployment rate at historic lows. When asked how she expects the policies of the incoming Trump administration to affect the economy, Kugler pointed out that there are many variables in play, making it difficult to predict how things will unfold. At the Fed's meeting in mid-December, officials lowered the target range for interest rates by 0.25 percentage points to between 4.25% and 4.5%. During the meeting, policymakers lowered their forecast for rate cuts in 2025 while raising their forecast for inflation levels. The change in outlook has led some to question why the Fed is cutting rates, considering officials' expectations that it will take a long time to reach the 2% inflation target. With Trump being reelected as president, the new year has brought considerable uncertainty to the Fed. The president-elect's agenda includes imposing high tariffs and deportations, which most economists believe could reignite inflation. However, officials have been cautious in reacting to the election results as they have not detailed what will be implemented and how. Kugler hinted at reluctance to further ease policy. She said, "I consider myself one who would like to maintain accommodative policy for a longer period, rather than the other side, which is 'we're done, why not just cut rates to neutral?'" Earlier on Friday, Richmond Fed President Barkin stated that uncertainty should decrease as policies are finalized. He added, "I think the risks on inflation are greater." He also noted that regardless of how the economy evolves, the Fed is in a favorable position in terms of policy.