Senior US Fed official optimistic about inflation fight

A senior Federal Reserve official said Tuesday that she is optimistic about the US central bank's progress against inflation, and expects it will be appropriate to start interest rate cuts this year.

The Fed has hiked interest rates to a two-decade high as it looks to bring inflation down toward its long-term target of two percent.

It appeared to be winning the fight until the first quarter of this year, when progress stalled, prompting Fed policymakers to dial back the number of interest rate cuts penciled in this year from three to just one.

But speaking on Tuesday, Fed governor Ariana Kugler said she remained "optimistic that improving supply and cooling demand will support continued disinflation."

"I believe economic conditions are moving in the right direction," she told an audience in Washington in prepared remarks.

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"If the economy evolves as I am expecting, it will likely become appropriate to begin easing policy sometime later this year," added Kugler, who is a permanent member of the US central bank's rate-setting committee.

Kugler said expectations about inflation over the long run "have remained well anchored," while there was evidence that lower-income consumers were pulling back on purchases, causing some businesses to lower their prices.

Businesses have also been reporting a slowdown in the costs they face, including an easing in the rate of wage increases, "consistent with a labor market where supply and demand are coming into better balance," she added.

The Fed has a dual mandate to tackle both inflation and unemployment, and has been heavily focused on bringing down inflation, even as the labor market remained resilient.

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Recent data have pointed to a slight easing in some corners of the labor market -- although the unemployment rate has remained close to historic lows.

Kugler said she was also optimistic about productivity growth, which has the potential to boost economic growth without fueling inflation, and added that she believed monetary policy was "sufficiently restrictive" to help cool down the US economy.

Against this backdrop, she reiterated her previous expectation that it would become appropriate to cut rates later this year, with the caveat that she would continue to be "guided by the data" in the months ahead.

Source: AFP