Fed Governor Cautious Despite Recent Inflation "Bump"

Federal Reserve Governor Adriana Kugler expressed cautious optimism about the US economy while acknowledging recent inflationary pressures in an interview on Friday, Bloomberg reports. While acknowledging that the economy is in a good place overall, Kugler stressed the need for further observation to ensure inflation is truly on a downward trajectory.

"We saw that in the first quarter of 2024 there was that bump and now we're seeing a bump again," Kugler said, referring to inflation, during a CNBC interview. "We want to make sure that that is indeed just a bump and not something more permanent."

Inflationary pressures have eased considerably since 2022, but progress toward the Fed's 2% target has been uneven in recent months. The Fed's preferred inflation gauge, the Personal Consumption Expenditures price index, rose 2.4% in November, aligning with June's level.

The Fed concluded 2024 with a quarter-point interest rate cut and projected only two more rate reductions in 2025. Chair Jerome Powell has indicated that further adjustments will hinge on inflation's trajectory.

Kugler noted some improvement in November's inflation figures, suggesting that the recent "bump" was largely attributable to non-market prices. This echoes December comments from Powell.

Kugler highlighted the resilience of the labor market, emphasizing the gradual nature of its cooling. The unemployment rate, which ticked up to 4.2% in November, remains historically low.

Regarding policies proposed by President-elect Donald Trump, Kugler emphasized the uncertainty surrounding their actual implementation and noted that the Fed is considering a wide range of possible economic scenarios.