Two Federal Reserve members expressed their belief that the US central bank still has work to do in controlling inflation, but they also made it clear that they do not want to jeopardize the labor market in the process.
The comments made by San Francisco Fed President Mary Daly and Governor Adriana Kugler underscore the fine balancing act that US central bankers must perform this year as they seek to moderate their rate-cutting pace. Short-term rates are currently between 4.25% and 4.50% after the Fed cut them by a full percentage point last year.
The Fed’s favored indicator of inflation, which registered 2.4% in November, is far lower than anticipated peak of over 7% in mid-2022. That is still higher than the Fed’s 2% target, and in December, officials anticipated slower development toward that goal than they had earlier anticipated.
At the annual American Economic Association conference in San Francisco, Kugler stated, “We are fully aware that we are not there yet – no one is popping champagne anywhere.” Additionally, simultaneously. We want the unemployment rate to remain stable rather than rise quickly.
The Fed’s second goal, along with price stability, is maximum employment, which she and colleague Daly believe is consistent with the 4.2% unemployment rate in November. Speaking on the same panel, Daly stated, At this point, I would not want to see further slowing in the labor market. It might move around in bumps and chunks over the course of a given month, but not additional slowing in the labor market.
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