Federal Reserve Governor Adriana Kugler stated on Tuesday that recent data indicates inflation will continue to decline toward the U.S. central bank’s 2% target. She cited a faster reduction in price pressures in recent months, moderation in wage growth, and an emerging balance between the demand for workers and the number of job seekers.
“The job market has seen substantial rebalancing,” Kugler said in remarks prepared for a National Association for Business Economics seminar. She noted that wage growth has moderated and the demand for workers is aligning with pre-pandemic levels.
“This ongoing rebalancing suggests that inflation will continue to move down toward our 2% target,” Kugler said. “If economic conditions continue to evolve favorably, with more rapid disinflation as evidenced by the past three months’ inflation data, and employment softening but remaining resilient as seen in recent jobs reports, I anticipate it will be appropriate to begin easing monetary policy later this year.”
While Kugler did not specify when rates might fall, her remarks align with the expectation that the Fed will prepare for rate cuts at its July 30-31 policy meeting and likely start reducing borrowing costs at its September 17-18 meeting. Investors currently see more than a 90% probability of this outcome.
“Despite a few bumps at the beginning of the year, inflation has continued to trend down in all price categories,” Kugler said, noting that the consumer price index actually fell from May to June. “Supply and demand are gradually coming into better balance. Supply-side bottlenecks are healing, and demand has moderated,” she added.
Fed Chair Jerome Powell has also expressed confidence that recent data supports the notion that inflation will decline to the 2% target, from its current level about half a percentage point above that mark.
Kugler’s remarks also addressed the challenges of economic measurement, particularly during the COVID-19 pandemic, when official government data often lagged behind actual economic developments and was out of sync with the pace at which Fed policymakers and other officials were making decisions.
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