MNI: Fed's Kugler Worried About Risk Of Near-Term Inflation

Federal Reserve Governor Adriana Kugler said Thursday she is worried about the risk that tariff policies will generate higher inflation, and supports keeping interest rates on hold for now while the FOMC assesses the full impact of fluid trade and immigration policies. 

"I see greater upside risks to inflation at this juncture and potential downside risks to employment and output growth down the road, and this leads me to continue to support maintaining the FOMC’s policy rate at its current setting if upside risks to inflation remain," Kugler said in prepared remarks. (See MNI POLICY: Fed Cut Impetus Fades Alongside Recession Risk) 

"I view our current stance of monetary policy as well-positioned for any changes in the macroeconomic environment," she added. "I do believe that our monetary policy stance, which I view as modestly restrictive, is currently appropriate to achieve and sustain 2% inflation over the longer term."

Kugler said so-called soft data from surveys are consistent with the view that economic growth is moderating but not yet slowing very substantially.

At the same time, Fed research suggests "the pass-through of tariffs into prices is relatively quick, and, second, should elevated tariffs persist, even just in the short run, larger effects may be coming soon. The import surge I mentioned earlier, ahead of sharp tariff increases, has delayed the price effects associated with those tariffs, and the reversal in that surge that I expect in the next few months will likely signal larger price increases."

Kugler said the labor market is at or near full employment but the trade war could derail that stability.

"There is the prospect that trade and other policy changes could raise the unemployment rate and push employment away from our objective," she said.