Kugler Says Fed Must Focus on Both Inflation and Jobs Goals

(Bloomberg) -- Federal Reserve Governor Adriana Kugler said policymakers must keep their focus on both the central bank’s inflation and employment goals, pointing to a cooling labor market and slower progress toward the Fed’s 2% inflation target.

“This combination of a continued but slowing trend in disinflation and cooling labor markets means that we need to continue paying attention to both sides of our mandate,” Kugler said in prepared remarks Thursday in Montevideo, Uruguay.

“If any risks arise that stall progress or reaccelerate inflation, it would be appropriate to pause our policy rate cuts,” she said. “But if the labor market slows down suddenly, it would be appropriate to continue to gradually reduce the policy rate.”

Asked during a subsequent Q&A session to clarify whether she was placing a higher bar on continuing to cut rates, Kugler said she was merely outlining two sets of risks.

“All I’m saying here is we need to keep paying attention to both sides of our mandate,” she said.

The central bank lowered borrowing costs by a quarter percentage point last week, following a larger, half-point reduction in September.

Several policymakers have urged a cautious approach to further interest-rate cuts in comments this week, in light of a strong economy, lingering inflation concerns and broad uncertainty.

While Kugler said wage moderation and anchored inflation expectations may allow for a further slowing in price growth, she flagged the risk that stubborn inflation in housing and other categories may stall additional progress.

Data out Wednesday showed the so-called core consumer price index, a gauge of underlying inflation that excludes food and energy, rose a firm 0.3% for a third straight month. The overall CPI accelerated to 2.6% from a year earlier.

With those figures in hand, Kugler said she expects the Fed’s preferred inflation gauge, the personal consumption expenditures price index, will be up 2.3% from a year earlier. She sees the core measure at 2.8%. The October figures will be released later this month.

Central Bank Independence

The majority of Kugler’s speech focused on central bank independence and how important it is to achieving good outcomes for the economy.

“Transparency is likewise seen in other economies as fundamental to monetary policy independence, which has increasingly been recognized for delivering better policy decisions that are more focused on the longer-term health of an economy,” she said.