United States: Adriana Kugler (Fed) pleads in favor of further rate cuts

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(Reuters) – Federal Reserve Governor Adriana Kugler said on Tuesday she would support further interest rate cuts by the U.S. central bank if inflation continued to fall, as the stock market work is showing signs of slowing down.

“If progress on inflation continues as I expect, I will support additional reductions in the federal funds rate in order to achieve a more neutral policy position over time,” she said during a conference of the European Central Bank (ECB) in Frankfurt.

The Fed cut the fed funds rate target by 50 basis points in September and investors expect another cut at its November meeting as inflationary pressures continue to ease and the labor market cools despite a recent indicator that was stronger than expected on job creation in September.

The unexpected strength of the economic health of the United States, however, makes investors fear that the Fed will take its time to reduce its rates, the probability of a new reduction of the same magnitude in November having completely collapsed in favor of a drop of 25 basis points after the publication of the employment indicator last Friday.

“While I think that the emphasis must remain on pursuing the objective of reducing inflation to 2%, I am in favor of attention also being focused on the ‘maximum employment’ aspect of the dual mandate of the FOMC,” she said, referring to the body of the Fed responsible for setting interest rates in the United States.

Adriana Kugler signaled that the Fed was keen to avoid further weakening of the labor market.

“We do not want a radical slowdown in the labor market,” she defended, noting that the jump in job creation and the drop in unemployment in September were welcome because they showed the resilience of the market.

“The labor market remains resilient, but I support a balanced approach to the FOMC’s dual mandate so that we can continue to make progress on inflation while avoiding an unwanted slowdown in employment growth and economic expansion,” she reiterated, clarifying that the Fed would rather look at trends and not a single indicator.

(Reporting Ann Saphir and Balazs Koranyi; French version Diana Mandia, edited by Blandine Hénault)

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