MNI BRIEF: Kugler Says Fed Is Keeping An Eye On Inflation

Federal Reserve Governor Adriana Kugler Monday said the central bank will be keeping an eye on the impacts of the administration's tariffs on inflation, but acknowledged risks to economic growth down the road. 

"We have one tool to meet these two goals, which means if we tighten policy we may weaken the economy. If we ease policy, on the other hand, we may drive inflation higher," she said at a Harvard University event. "We have to be very careful in how we navigate this period. But my the takeaway is that right now inflation has been more pressing as far as the effects of tariffs that we're already seeing and maybe this front loading is going to help, at least in terms of keeping economic activity at the beginning of the year."

Kugler argued that Fed communications are key in ensuring that inflation continues to come down, inflation expectations remain anchored, and still keeping unemployment at historically low rates. "It should be a priority to make sure that inflation doesn't move up." (See: MNI INTERVIEW: Fed Must Stay Hawkish Amid Tariff Shock-Kamin)

The Fed governor said interest rates are currently "moderately restrictive." Tariff announcements made last week, according to private forecasters and analysts, should raise tariffs "to an effective level of 21% to 26%. That's up from the 2.6% where we started at the beginning of the year. So it should be consequential," she said. 

Asked about recent financial market movements, Kugler said: "We need to pay attention because that does have an impact on the real economy right down the road, if they turn out to be more permanent."