Fed’s Kugler Says Lower Rates This Year Likely Appropriate

Thank you, Andrew, and thank you for the opportunity to speak here today. I am very pleased to be talking here at the Weidenbaum Center. As an economist currently working on policy, but with a long trajectory in research, I particularly appreciate the center's multidisciplinary approach to building bridges between these two applications of economics. The Federal Open Market Committee (FOMC) has been working to lower inflation in the context of our dual mandate of maximum employment and price stability. Today I will discuss economic developments in the U.S. and how I view the current stance of monetary policy in light of recent data and longer-run trends. Since I am an economist, you will not be surprised that I will talk about recent economic developments by highlighting the dynamics of supply and demand. As you all know, inflation began to rise in 2021. By mid-2022, 12-month inflation, based on the personal consumption expenditures (PCE) price index, was around 7 percent—much too high and far above the FOMC's 2 percent longer-run objective. But since that time, PCE inflation has slowed significantly, declining to 5.4 percent at the end of 2022, then to 2.6 percent at the end of 2023, and then to 2.5 percent in February. Inflation can sometimes be hard to read from overall PCE inflation figures due to the volatility of food and energy prices. For that reason, it is sometimes helpful to focus on "core" PCE inflation, which excludes those categories and is a better guide to the direction of inflation. Core PCE inflation peaked at a rate above 5-1/2 percent in early 2022 but fell rapidly during 2023. In fact, the core PCE disinflation we saw last year was the fastest since the early 1980s. The progress has sometimes been bumpy from month to month, and, indeed, January and February of this year showed a bit of firming in the inflation data. But the January numbers, in particular, featured some atypical or seasonal factors that suggest a need to withhold judgment. The 12-month core PCE rate now stands at 2.8 percent. That rate represents considerable progress, but it is still meaningfully above the FOMC's 2 percent tar post: Fed’s Kugler: My Policy Rate Expectation is Consistent with March FOMC Meeting Policymaker Projections Fed’s Kugler: Policy is Currently Restrictive, and My Baseline Expectation is That Disinflation Will Continue Without a Broad Economic Slowdown post: FED'S KUGLER: ANNUAL CORE PCE AT 2.8% REPRESENTS CONSIDERABLE PROGRESS BUT IS STILL MEANINGFULLY ABOVE THE FED'S 2% TARGET.