Fed Officials Stress Inflation Battle Not Over

This Jan. 4 story has been refiled to remove repetitive paragraphs

By Ann Saphir

(Reuters) – Two Federal Reserve policymakers on Saturday expressed that the U.S. central bank’s efforts to combat inflation are ongoing. However, they indicated that they want to avoid harming the labor market while addressing this issue.

Comments from Governor Adriana Kugler and San Francisco Fed President Mary Daly demonstrate the precarious balancing act that U.S. central bankers must navigate this year as they aim to reduce the rate of cuts. Last year, the Fed decreased short-term interest rates by a full percentage point, bringing them to a range of 4.25%-4.50%.

While inflation, as indicated by the Fed’s preferred measure, has significantly decreased from its mid-2022 peak of around 7% to 2.4% in November, it remains above the Fed’s 2% target. In December, Fed officials projected that progress towards this goal would be slower than previously expected.

“We are fully aware that we are not there yet – no one is popping champagne anywhere,” Kugler stated at the American Economic Association conference in San Francisco. “At the same time … we want the unemployment rate to stay where it is” and not rise rapidly.

The unemployment rate was 4.2% in November, aligning with both Kugler and Daly’s view of maximum employment, the Fed’s secondary goal next to price stability.

“At this point, I would not want to see further slowing in the labor market—perhaps gradual fluctuations but certainly not additional slowing,” Daly remarked during the same panel.

Neither policymaker commented on the potential effects of incoming President Donald Trump’s economic strategies, such as tariffs and tax cuts, which could potentially stimulate growth and reignite inflation.