Fed’s Kugler notes significant disinflation amid steady cooling in labor market

In a speech today, Fed Governor Adriana Kugler said the US sees “considerable disinflation” paired with a “cooling” yet “resilient” labor market. This dual scenario means Fed must continue “paying attention to both sides of our mandate,” referring to price stability and maximum employment.

On the inflation side, Kugler acknowledged recent moderation in wage growth and inflation expectations, noting these factors support further progress on inflation. However, she cautioned that persistent inflation in housing and specific goods and services sectors could “stall progress”.

Meanwhile, she highlighted rebalancing in the labor market, attributing this to increased labor supply from immigration and a stronger pool of prime-age workers, alongside lower demand resulting from tight monetary policy.

Kugler indicated that if risks arise that impede progress or cause inflation to reaccelerate, it would be appropriate to pause policy rate cuts. Conversely, if the labor market slows down suddenly, Fed should consider continuing to gradually reduce the policy rate.

Full speech of Fed’s Kugler here.