Federal Reserve governor Adriana Kugler said Tuesday that she is in favor of holding interest rates steady for “some time” as some economic data shows signs of softness and progress on inflation slows.
The Fed’s rate-setting committee “can react to new developments by holding at the current rate for some time as we closely monitor incoming data and the cumulative effects of new policies,” she said in a speech in Washington, D.C., citing a “heightened level of uncertainty.”
The central bank last Wednesday decided to hold interest rates steady at 4.25% to 4.5% for the second meeting in a row and maintained a prior prediction for two rate cuts at some point this year.
What the central bank did change, however, was its outlook on inflation (higher) and economic growth (lower), with Fed Chair Jerome Powell saying that a driving reason for the change was uncertainty stemming from Trump’s plans for an aggressive slate of new tariffs on top of new duties already imposed on China, Canada, and Mexico.
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Kugler is particularly watching inflation amid an increase in consumer expectations for inflation in the short term because of Trump’s tariffs.
“I am paying close attention to the acceleration of price increases and higher inflation expectations, especially given the recent bout of inflation in the past few years,” Kugler said.
Kugler highlighted that prices of goods have started rising again after falling over the past year, which she says is “unhelpful” because it helped keep a lid on overall inflation and also impacts inflation expectations.
Fed officials will get a new reading on inflation during the month of February this Friday with the release of the Personal Consumption Expenditures (PCE) index, the Fed’s preferred gauge.
Economists expect annual “core” PCE — which excludes the volatile categories of food and energy — to have clocked in at 2.7% in February, up from the 2.6% seen in January. Over the prior month, economists project “core” PCE at 0.3%, unchanged from January.
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Kugler said the PCE shows “welcome progress” from a peak of more than 7% in June 2022, but “that progress has slowed since last summer.”
Kugler also noted that some economic data has shown weakness, pointing to recent retail sales, and that the pace of hiring during the first two months of the year has slowed compared with the strong gains in November and December, but she said that could reflect weather disruptions and seasonal adjustment challenges.
Overall, though, the economy’s “solid position” allows the Fed to be patient for now as it weighs uncertainties stemming from Trump’s economic policies.
Trump on Monday said he would like to see the Fed lower rates because inflation is coming down.
“I’d like to see the Fed lower interest rates,” he said Monday during a Cabinet meeting, where he stressed that grocery and energy prices are coming down.
“That’s just my opinion, because things are coming down. We have inflation under control. Tremendous amounts of money will be soon coming in from tariffs.”
Treasury Secretary Scott Bessent at the same Cabinet meeting Monday also promised inflation would be contained, stressing that the administration is reducing “excess employment in the government sector … so everyone laid off from the government will have an opportunity to go into the private sector.”
That, Bessent added, “is going to lead to disinflation” and get inflation “under control.”
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