Federal Reserve governor Adriana Kugler said Tuesday that she "strongly supported" the decision to cut rates by half a percentage point in September, and that she favors more cuts if inflation continues to drop.
"If progress on inflation continues as I expect, I will support additional cuts in the federal funds rate to move toward a more neutral policy stance over time," Kugler said in a speech in Germany.
But she emphasized that any decision on cutting rates will depend on "multiple, diverse sources" of economic data.
If downside risks to the job market intensify “it may be appropriate to move policy more quickly to a neutral stance,” she said, while adding the Fed may need to slow the pace of rate cuts if incoming data do not provide confidence that inflation is moving sustainably toward the Fed’s 2% goal.
Markets are now pricing in a 25 basis point rate cut for the next policy meeting in November.
Kugler’s comments come ahead of a fresh reading on inflation later this week. The Consumer Price Index (CPI) due out Thursday is expected to show core inflation — which eliminates volatile food and energy prices the Fed can’t control — held steady on an annual basis in September at 3.2% from the same level in August.
Month over month, CPI is expected to have grown by 0.2%, compared with 0.3% in August.
While Kugler says she believes the focus should remain on continuing to bring inflation down to 2%, she said she supports shifting attention to the job market as well. The Fed has a dual mandate to maintain price stability and ensure maximum employment.
"The labor market remains resilient, but I support a balanced approach to the FOMC’s dual mandate so we can continue making progress on inflation while avoiding an undesirable slowdown in employment growth and economic expansion," she said.
Kugler’s comments follow a much stronger-than-expected jobs report for the month of September that saw more than 250,000 jobs added and unemployment ticking down to 4.1%— though it could have been 4.0% without rounding.
Kugler said she is also monitoring the economic impact of Hurricane Helene, along with geopolitical events in the Middle East, for any impact on the U.S. economic outlook.
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