Two Fed Officials Call for Further Rate Cuts

Federal Reserve Governor Adriana Kugler said on Tuesday that she strongly supports the central bank's recent rate cuts and would back further reductions if inflation continues to slow as she expects.

Kugler said: "While I believe the focus should remain on continuing to bring the inflation rate back to the 2% target, I also support shifting attention to maximizing employment within the Federal Open Market Committee's (FOMC) dual mandate." "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 unwelcome slowdown in job growth and economic expansion."

Kugler said that the strengthening U.S. economy has allowed the FOMC to be "patient with timing" in reducing policy rates and focusing on reducing inflation. She said: "If progress on inflation continues as I expect, I would support further lowering the federal funds rate to gradually shift towards a more neutral policy stance." She added that she is closely monitoring the impact of Hurricane "Helene" on the economy, as well as geopolitical events in the Middle East.

Kugler said: "If employment downside risks escalate, it may be appropriate to move more quickly towards a neutral policy stance. Alternatively, if future data does not convince people that inflation is continuing to fall back to 2%, then slowing the pace of policy rate normalization may be appropriate."

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Meanwhile, New York Fed President John Williams, who has a permanent vote on the FOMC, said in an interview on Tuesday that it would be appropriate for the Fed to cut rates again "over time" after a 50 basis point cut in September.

Williams said in the interview that he does not believe the Fed's 50 basis point cut in September is "a guide for our future actions." He said: "I personally expect that it will be appropriate to lower rates again over time." "Currently, I think monetary policy is well positioned for the outlook. If you look at the Summary of Economic Projections, you will find that it is a very good base case, the economy will continue to grow, and inflation will return to 2%."

It is worth mentioning that the U.S. non-farm employment data released last Friday was stronger than market expectations, prompting the market to reduce bets on Fed rate cuts. According to the CME's FedWatch tool, traders currently predict a 25 basis point cut next month with an 87% probability and have ruled out the possibility of a significant 50 basis point cut.