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Kugler says Fed should hold interest rates amid inflation risks

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Adriana Kugler, member of the Board of Governors of the US Federal Reserve, speaks on the economy in Washington, DC, US, on Wednesday, Feb. 7, 2024. 

Al Drago | Bloomberg | Getty Images

Inflation could prove sticky while prices might pick up again, Federal Reserve Governor Adriana Kugler warned, signaling that the U.S. central bank should keep interest rates steady for the time.

“I’m actually quite concerned about some of the persistence in inflation that we have been seeing,” she told CNBC’s Silvia Amaro during a fireside chat at the Conference on Monetary Policy Transmission and the Labor Market on Friday.

She pointed to a recent acceleration of inflation expectations, which she said she watches closely for their effect on how businesses set prices and how workers negotiate wages. This in turn means they could feed back into inflation.

Several recent data points have indicated concerns from consumers about prices increasing, with the latest Consumer Confidence Index from the Conference Board showing 12-month inflation expectations jumped to 6% in February, up from 5.2% the prior month.

“I have been one of those who has supported strongly any policy that really keeps inflation expectations well anchored. And I think that’s critical, and it has served us well,” Kugler said.

Looking ahead, the Fed’s Kugler indicated that prices could also rise again.

“I think you know there is reason to believe, potentially, that there could be price increases and more persistent inflation,” she said, adding that higher prices could come from “some of the policies that maybe are being considered and some that have already been put into place.”

Such policies could also impact economic activity, Kugler noted.

“We need to probably take account of some of this persistence that I mentioned, because of different categories of prices, because of inflation expectations, and potentially because some of the new policies that are ahead of us,” Kugler said.

Touching on the frequently changing developments surrounding the U.S. administration’s decision to impose tariffs on goods imported from key trading partners, including negotiations and potential retaliatory moves, the Fed’s Kugler said there was still “considerable uncertainty.”

Analysts and economists have widely indicated that they expect potential tariffs, and any reciprocal measures to bump prices higher for countries on both sides of the measures.

In prepared remarks Kugler gave at the conference, she likewise warned of inflation risks also weighing in on the outlook for interest rates from the Fed.

“Given the recent increase in inflation expectations and the key inflation categories that have not shown progress toward our 2 percent target, it could be appropriate to continue holding the policy rate at its current level for some time,” she said in the address.

The Fed has cut interest rates three times since September, for a combined full percentage point, before holding steady in January. The bank’s overnight borrowing rate currently sits in a range between 4.25%-4.5%.

According to CME Group’s FedWatch tool, traders were last pricing in a 97% chance of the central bank also leaving rates unchanged when it next meets later this month. The picture then appears to become less clear, with an around 63% likelihood of rates also being held at the Fed’s May meeting, before tipping toward a rate cut in June.

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Checks and Balance newsletter: Why do people join the Trump administration?

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The judge losing his patience with the Trump administration

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DONALD TRUMP likes picking fights with judges. In 2016 Mr Trump said a judge’s Mexican heritage rendered him incapable of fairly adjudicating fraud cases against Trump University, a for-profit institution that closed in 2011. Two years later the president condemned a ruling against his immigration policies as a “disgrace”. Lawsuits against him during the Biden years—including one for conspiring to steal the 2020 election—spurred many attacks.

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Jobs report April 2025:

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Job growth was stronger than expected in April despite worries over the impact of President Donald Trump’s blanket tariffs against U.S. trading partners.

Nonfarm payrolls increased a seasonally adjusted 177,000 for the month, slightly below the downwardly revised 185,000 in March but above the Dow Jones estimate for 133,000, the Bureau of Labor Statistics reported Friday.

The unemployment rate, however, held at 4.2%, as expected., indicating that the labor market is holding relatively stable.

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