Fed's Kugler: Economic Data Will Guide Future Policies Amid Uncertainty

Federal Reserve Governor Adriana Kugler expressed on Friday that the future direction of monetary policy will heavily depend on forthcoming economic data, amid uncertainties about the U.S. economy's performance in 2025.

During a recent interview with CNBC, Kugler mentioned that the Federal Reserve's recent forecasts indicated a more cautious approach regarding interest rate cuts in 2025. She suggested that there is a tendency to adopt a "gradual" stance while monitoring economic indicators, specifically looking for signs of declining inflation pressures.

Potential Changes Based on Job Market Conditions

Kugler indicated that the resilient job market has shown signs of cooling but remains fundamentally strong, with an unemployment rate that is still historically low. However, she acknowledged that if job growth begins to falter, the Fed would be prepared to adjust its policies accordingly. “We’re always responding to what happens in the economy and seeing what is happening in front of us,” she stated.

Impact of Political Changes on the Economy

When asked about the potential impact of the incoming Trump administration on the economy, Kugler noted the complexities surrounding the situation, making it challenging to predict the outcome. Her comments came shortly after the Federal Reserve’s mid-December Federal Open Market Committee meeting, where officials reduced the interest rate target range by a quarter percentage point to between 4.25% and 4.5%. At that meeting, the policymakers also revised their expectations, reducing the number of projected rate cuts in 2025 while increasing forecasts regarding inflation levels.

The start of the new year brings significant uncertainty for the Fed, particularly following President-elect Donald Trump's campaign promises which included heavy trade tariffs. Many economists believe these policies could lead to higher inflation. Despite this, Fed officials are proceeding cautiously given the ambiguity surrounding possible policy changes under the new administration.

Inflation Risks and Policy Outlook

Richmond Fed President Thomas Barkin echoed similar sentiments, pointing out that the uncertainty surrounding how tariffs may be imposed could affect the economic landscape. He suggested that once policies are defined, the level of uncertainty should decrease. Kugler and Barkin both recognize that there are inherent risks associated with inflation and that the Fed is relatively well-prepared to respond to various economic conditions.

As the discussion around whether to further ease policies continues, Kugler expressed a preference for maintaining a restrictive stance for an extended period rather than quickly moving towards neutral interest rates. This careful approach reflects ongoing efforts to manage inflation while staying responsive to economic shifts.

Fed, Policy, Economy