Inflation on ‘sustainable path’ to 2%, but no preset path for policy - Fed Gov. Kugler

Inflation “appears to be on a sustainable path” to meet the Federal Reserve’s 2% goal, Fed Gov. Adriana Kugler said Dec. 3, though she warned that monetary policy is sensitive to new data.

“It is important to emphasize that policy is certainly not on a preset path,” Kugler said at the Detroit Economic Club. “I will make decisions meeting-by-meeting and carefully assessing new data that comes in.”

Her language mirrors that of Fed Chair Jerome H. Powell, who said Nov. 14 that while the central bank is moving monetary policy toward a more neutral setting, “the path for getting there is not preset.”

At its most recent Nov. 7 meeting, the Federal Open Market Committee approved a quarter-point interest rate cut, following a half-point cut in September.

Kugler referenced the most recent readings of inflation measures: the Personal Consumption Expenditures price index rose 2.3% year-over-year in October, while the core PCE index — which excludes food and energy — rose 2.8% over the same period, according to data from the Bureau of Economic Analysis.

“I still view those readings, as of now, as consistent with inflation and on path to return to our 2% goal, and I am encouraged that inflation expectations appear to be very well-anchored,” Kugler said, adding that the readings “also show the job is not done yet.”

With the FOMC’s next two-day meeting scheduled to end Dec. 18, market participants predict there is a 72.1% chance that the committee initiates another quarter-point cut that meeting, according to the CME FedWatch Tool that tracks trading in the 30-day Fed Funds futures prices.

Kugler also said the labor market “remains solid,” contending that labor force growth over the past year is largely due to an increase in immigration.

When asked what impact increased deportations might have on the national economy, Kugler said she didn’t want to comment on specific policies, especially when “we don’t know what exactly is going to be implemented.”

President-elect Donald Trump has said he plans to conduct mass deportations, which some worry could negatively impact different sectors of the economy, such as agriculture.

Kugler noted that “in certain sectors, immigration has been very helpful at meeting the needs of a very scarce labor force that we had at the time, in bringing down and moderating wages, in reducing services inflation in those sectors that rely on labor heavily. So presumably, right, a retracing of that may have a different effect,” though she reiterated that she was hesitant to give specifics.