US central bank’s job on taming surging inflation is not yet done

Two Federal Reserve policymakers said they feel the US central bank’s job on taming inflation is not yet done, but also signaled they do not want to risk damaging the labour market as they try to finish that job.

The remarks, from Governor Adriana Kugler and San Francisco Fed President Mary Daly, highlight the delicate balancing act facing US central bankers this year as they look to slow their pace of rate-cutting. The Fed lowered short-term rates by a full percentage point last year, to a current range of 4.25%-4.50%.

Inflation by the Fed’s preferred measure is well down from its mid-2022 peak of around 7%, registering 2.4% in November. Still that’s above the Fed’s 2% goal, and in December policymakers projected slower progress toward that goal than they had earlier anticipated.

“We are fully aware that we are not there yet - no one is popping champagne anywhere,” Kugler said at the annual American Economic Association conference in San Francisco. “And at the same time... we want the unemployment rate to stay where it is” and not increase rapidly.

In November, unemployment was 4.2%, consistent in both her and colleague Daly’s view with maximum employment, the Fed’s second goal alongside its price stability goal.

“At this point, I would not want to see further slowing in the labour market − maybe gradually moving around in bumps and chunks on a given month, but certainly not additional slowing in the labour market,” said Daly, who was speaking on the same panel.

The policymakers were not asked, nor did they volunteer their views, about the potential impact of incoming president Donald Trump’s economic policies, including tariffs and tax cuts, which some have speculated could fuel growth and reignite inflation. Two Federal Reserve policymakers on Saturday said they feel the US central bank’s job on taming inflation is not yet done, but also signaled they do not want to risk damaging the labour market as they try to finish that job.

The remarks, from Governor Adriana Kugler and San Francisco Fed President Mary Daly, highlight the delicate balancing act facing US central bankers this year as they look to slow their pace of rate-cutting. The Fed lowered short-term rates by a full percentage point last year, to a current range of 4.25%-4.50%.

Inflation by the Fed’s preferred measure is well down from its mid-2022 peak of around 7%, registering 2.4% in November. Still that’s above the Fed’s 2% goal, and in December policymakers projected slower progress toward that goal than they had earlier anticipated.

“We are fully aware that we are not there yet - no one is popping champagne anywhere,” Kugler said at the annual American Economic Association conference in San Francisco. “And at the same time... we want the unemployment rate to stay where it is” and not increase rapidly.

In November, unemployment was 4.2%, consistent in both her and colleague Daly’s view with maximum employment, the Fed’s second goal alongside its price stability goal.

“At this point, I would not want to see further slowing in the labour market − maybe gradually moving around in bumps and chunks on a given month, but certainly not additional slowing in the labour market,” said Daly, who was speaking on the same panel.

The policymakers were not asked, nor did they volunteer their views, about the potential impact of incoming president Donald Trump’s economic policies, including tariffs and tax cuts, which some have speculated could fuel growth and reignite inflation. Two Federal Reserve policymakers on Saturday said they feel the US central bank’s job on taming inflation is not yet done, but also signaled they do not want to risk damaging the labour market as they try to finish that job. The remarks, from Governor Adriana Kugler and San Francisco Fed President Mary Daly, highlight the delicate balancing act facing US central bankers this year as they look to slow their pace of rate-cutting. The Fed lowered short-term rates by a full percentage point last year, to a current range of 4.25%-4.50%.

Inflation by the Fed’s preferred measure is well down from its mid-2022 peak of around 7%, registering 2.4% in November. Still that’s above the Fed’s 2% goal, and in December policymakers projected slower progress toward that goal than they had earlier anticipated.

“We are fully aware that we are not there yet - no one is popping champagne anywhere,” Kugler said at the annual American Economic Association conference in San Francisco. “And at the same time... we want the unemployment rate to stay where it is” and not increase rapidly.

In November, unemployment was 4.2%, consistent in both her and colleague Daly’s view with maximum employment, the Fed’s second goal alongside its price stability goal.

Reuters