Federal Reserve Gov. Adriana D. Kugler said Feb. 7 the Fed would be able to reduce the federal funds rate "at some point," if inflation and the labor market remain in check.
"At some point, the continued cooling of inflation and labor markets may make it appropriate to reduce the target range for the federal funds rate," Kugler said at an event hosted by the Brookings Institution Hutchins Center on Fiscal and Monetary Policy. "On the other hand, if progress on disinflation for some reason stalls, it may be appropriate to hold the target range steady at its current level for longer to ensure continued progress on our dual mandate."
At its two-day meeting ending Jan. 31, the Federal Open Market Committee held the federal funds rate steady at a range of 5.25% to 5.5%. Fed Chair Jerome H. Powell said that while recent inflation data has been encouraging, the committee will "need to see more" before issuing a rate cut.
Kugler echoed this, adding, "I am pleased by the progress on inflation, and optimistic it will continue, but I will be watching the economic data closely to verify the continuation of this progress."
Specifically, Kugler said she will be watching data in the category of core services excluding housing, which accounts for about 50% of the personal consumption expenditures index, the Fed's preferred inflation gauge. The PCE Price Index Excluding Food and Energy, also known as the core PCE price index, increased by 2.9% year over year in December, showing the smallest rise since March 2021, according to data released Jan. 26.
"The job is not done yet," Kugler said. "We will certainly move forward in terms of the federal funds rate, and that path will depend on … how we start seeing our movement towards our (2% inflation) target."