MNI: Kugler Says Fed Could Keep Rates Steady 'For Some Time'

Federal Reserve Governor Adriana Kugler said Friday that interest rates are well-positioned but given recent increases inflationary pressures and rises in inflation expectations it could be appropriate to hold interest rates "for some time." 

"Given the recent increase in inflation expectations and the key inflation categories that have not shown progress toward our 2% target, it could be appropriate to continue holding the policy rate at its current level for some time," she said in prepared remarks. "Going forward, I will continue to closely monitor the effects of policies on the economy, and I will carefully assess incoming data, the evolving outlook, and any changes in the balance of risks." 

Recently, labor supply and demand in the United States have been roughly in balance, and the unemployment rate has been running close to the estimates of FOMC participants for its longer-run rate, she said in a speech in Lisbon at the Bank of Portugal’s Conference on Monetary Policy Transmission and the Labor Market. 

"Today’s employment report for February corroborates this view," she said. "The net number of new jobs created was 151,000, not too far from the 177,000 average of the previous six months," Kugler said, also noting the unemployment rate at 4.1%, "still in the narrow range between 4% and 4.2% that it has remained in since last summer."

UPSIDE INFLATION RISKS

Inflation has moved sideways since the second half of last year, with uneven progress across its major categories, she said. Housing inflation has "finally come down to an estimated 4.5% in January," and measures of new rents, such as those published by CoreLogic, suggest further progress in housing inflation going forward. 

But core goods inflation has also been slowly rising, Kugler said. "Consistent with an increase in goods prices, the releases of manufacturing and nonmanufacturing surveys this week, including those by the Institute for Supply Management, showed a jump in prices paid for purchases inputs."

"This rise is not a welcome development because, over the long term, goods price deflation has offset price increases in other categories and kept a lid on overall inflation."

"There are important upside risks to inflation. Some measures of inflation expectations have risen significantly in the past couple of months, including those from the Michigan survey, the Conference Board, and the Atlanta Fed’s survey of businesses," she said. (See: MNI INTERVIEW: Fed To Closely Gauge Inflation Views - Schoenle)

"There is also considerable uncertainty about the inflationary effects of new policies and policy proposals."