Fed’s Kugler signals rate cuts later this year amid continued disinflation

In a speech overnight, Fed Governor Adriana Kugler noted that despite “a few bumps” earlier in the year, inflation has “continued to trend down” across “all price categories.”

She mentioned that supply and demand are “gradually coming into better balance,” with supply bottlenecks easing and demand moderating due to high interest rates and the depletion of households’ excess savings.

Kugler also pointed out that the labor market has seen “substantial rebalancing,” with nominal wage growth moderating. This trend suggests that inflation will continue moving toward Fed’s 2% target.

Kugler indicated that if economic conditions continue to evolve favorably, with more rapid disinflation and resilient employment, “it will be appropriate to begin easing monetary policy later this year.” However, she stressed that her approach will remain data-dependent.

She added that if the labor market cools too much and unemployment rises due to layoffs, it might be necessary to cut rates “sooner rather than later.” On the other hand, if data do not confirm that inflation is moving sustainably toward 2%, it may be appropriate to “hold rates steady for a little longer.”

Full speech of Fed’s Kugler here.