Fed’s Kugler Supports Holding Rates Amid Upside Inflation Risks

Federal Reserve Governor Adriana Kugler said it’s appropriate to keep interest rates unchanged until upside risks to inflation abate, pointing to government policy changes, the recent lack of progress on cooling price growth and rising inflation expectations.

Author of the article:

Bloomberg News

Catarina Saraiva

Published Apr 02, 2025  •  2 minute read

Adriana Kugler, member of the Board of Governors of the US Federal Reserve, speaks on the economy in Washington, DC, US, on Wednesday, Feb. 7, 2024. Kugler presented an optimistic case for a continued slowdown in US inflation while indicating there is little urgency to reduce the Fed's benchmark lending rate soon. Photo by Al Drago /Bloomberg

(Bloomberg) — Federal Reserve Governor Adriana Kugler said it’s appropriate to keep interest rates unchanged until upside risks to inflation abate, pointing to government policy changes, the recent lack of progress on cooling price growth and rising inflation expectations.

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“I will support maintaining the current policy rate for as long as these upside risks to inflation continue, while economic activity and employment remain stable,” Kugler said in prepared remarks for an event Wednesday. “Going forward, I will carefully assess incoming data, the evolving outlook and changes in the balance of risks.”

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Kugler added that progress toward bringing inflation down to the Fed’s 2% target may have stalled and flagged the upside risks associated with “announced and prospective policy changes.”

Kugler’s comments were written before President Donald Trump unveiled his plans for widespread tariffs on US trade partners. While there will be a minimum 10% baseline tariff on all countries, many will face much higher rates. 

For example, China is set to pay a 34% tariff. The European Union will see a 20% levy, and Vietnam faces a 46% rate. Canada and Mexico, among the biggest US trading partners, have been exempted from the reciprocal tariffs for now.

Trump’s announcement was more aggressive than some had anticipated, driving stock futures lower and Treasuries higher.  

Uncertainty about tariffs and how they will impact the economy, alongside a still-solid labor market, have led policymakers to keep interest rates unchanged this year. Officials lowered borrowing costs by a full percentage point in the last few months of 2024.

Inflation Expectations

Inflation, which has cooled since reaching a four-decade high in 2022, hasn’t improved much recently, data show. Tariff worries, meanwhile, have driven up Americans’ expectations for future price growth.

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Consumers’ expectations of longer-term inflation climbed to a 32-year high in March, according to the University of Michigan. Kugler, who spoke at length about the importance of well-anchored inflation expectations, made note that both short- and long-term inflation expectations have increased recently.

“For now, I take some comfort from the much smaller increases in longer-term expectations as measured by the Philadelphia Fed’s Survey of Professional Forecasters, as well as the stability of longer-term measures of what we call inflation compensation, which is based on yields from nominal and inflation-indexed Treasury securities,” Kugler added.

(Updates to include details about President Donald Trump’s tariff announcement.)

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