Two Federal Reserve policymakers stated on Saturday that they believe the U.S. central bank’s efforts to control inflation are not yet complete. However, they also indicated that they do not wish to jeopardize the labor market in the process of achieving this goal.
The comments from Governor Adriana Kugler and San Francisco Fed President Mary Daly underscore the challenging balancing act U.S. central bankers face this year as they consider slowing their rate-cutting pace. The Fed reduced short-term rates by a full percentage point last year, bringing them to a current range of 4.25%-4.50%.
Inflation, as measured by the Fed’s preferred indicator, has significantly decreased from its mid-2022 peak of around 7%, now registering at 2.4% in November. Despite this progress, it remains above the Fed’s target of 2%. In December, policymakers projected that progress toward this goal would be slower than previously expected.
“We are fully aware that we are not there yet — no one is popping champagne anywhere,” Kugler remarked during the annual American Economic Association conference in San Francisco, California. “And at the same time … we want the unemployment rate to stay where it is” and not rise rapidly.
As of November, the unemployment rate stood at 4.2%, a figure that both Kugler and Daly regard as consistent with maximum employment, which is the Fed’s second objective alongside price stability.
“At this point, I would not want to see further slowing in the labor market — maybe gradually moving around in bumps and chunks on a given month, but certainly not additional slowing in the labor market,” Daly stated while speaking on the same panel.
The policymakers did not provide their insights regarding the potential effects of incoming President-elect Donald Trump’s economic policies, such as tariffs and tax cuts, which some speculate could stimulate growth and reignite inflation.
