Federal Reserve Uncertainty in 2025

By Michael S. Derby

(Reuters) – Federal Reserve Governor Adriana Kugler stated on Friday that the U.S. central bank is unsure about the economic landscape for 2025 and will let forthcoming economic data steer monetary policy.

In light of Fed forecasts from last month, which indicate fewer interest rate cuts in 2025, Kugler expressed a view that the bank can afford to proceed slowly and more gradually while monitoring the data for signs of easing inflation pressures. She stated in a CNBC interview, “If the resilient job market starts to lose steam, however, we would be ready to act in a different direction with monetary policy. We’re always responding to what happens in the economy and seeing what is happening in front of us.”

Kugler remarked that despite a cooling job market, it remains resilient, with an historically low unemployment rate. When discussing the potential impacts of the incoming Trump administration’s policies on the economy, she noted the complexity of factors involved, making it difficult to predict outcomes.

These comments marked her first public remarks since the central bank’s recent policy meeting and were among the earliest from a central banker at the start of 2025.

During the Fed’s mid-December Federal Open Market Committee meeting, officials reduced their interest rate target by a quarter percentage point to a range of 4.25% to 4.5%. Policymakers also pulled back on their rate cut estimates for 2025 while raising their inflation projections.

This change in outlook led some to question the rationale behind the recent rate cuts, given the extended timeline predicted for reaching the 2% inflation target.

As the new year begins, uncertainty looms over the Fed with Donald Trump’s return to the presidency. His campaign featured heavy trade tariffs and deportations, viewed by many economists as likely to reignite inflation. However, officials remain cautious about reacting to the election outcome, given the ambiguity surrounding actual policy implementation.

Kugler commented, “There is a wide set of scenarios, and I think everybody’s considering that wide set of scenarios.”

Earlier on Friday, Richmond Fed President Thomas Barkin noted that while tariffs might be implemented in various ways, the uncertainty should diminish as policies are formalized. He added, “I see more risk on the inflation side,” emphasizing that the Fed is well-equipped for whatever economic conditions arise.

Kugler expressed a desire to maintain a restrictive policy stance longer, stating, “I put myself in the camp of wanting to stay restrictive for longer as opposed to ‘we’re done, so why not take rates down to neutral.'”