Feds Kugler: Appropriate to keep policy rate of interest steady for some time

• Appropriate to keep policy rate of interest steady for some time given low unemployment, and building price pressure from tariffs.
• Inflation remains above the 2% target.
• Labor market is stable and resilient.
• A restricted policy stance is important right now to keep inflation expectations anchored.
• Estimate of June PCE inflation is 2.5% versus 2% target. Core estimate at 2.8%. Both higher than in May.
• CPI shows inflation broadly across four goods.
• Many reasons to think quarter impact of tariffs on inflation is still to come.

In the category of sympathetic to Pres. Trump and his rate cutting hopes, Kugler is not in that camp now.

By the way the Fed will enter the blackout period at the close of business on Friday in preparation for the July FOMC rate decision on July 30 at 2 PM ET.

Late yesterday Fed Williams spoke. Below are the summary of his comments:

Fed’s Williams: Inflation progress continues, but data dependence remains key. Sees inflation from tariffs.

• Williams emphasized the Fed still needs to see more data before making decisions on policy changes.

• He refused to comment on political attacks (e.g., from Trump), reaffirming that the Fed remains focused on its mission and not political noise.

• Noted that inflation has moderated unevenly, especially due to housing-related factors.

• Without tariffs, inflation would be close to 2% already.

• So far, tariff impacts have been modest, but they are expected to increase over time.

• Tariffs could add about 1 percentage point to inflation between now and 2026.

On the Economy and Policy Stance

• Fed policy is moderately restrictive and appropriate.

• This stance gives the Fed time to monitor the evolving data. (not in a hurry)

• The disinflation process is ongoing, though uneven.

• Financial conditions remain supportive of growth.

Outlook

• Inflation (June): 2.5% headline, 2.75% core.

• Inflation forecast: 3.0%–3.5% this year → 2.5% in 2026, 2.0% in 2027.

• Unemployment expected to rise to 4.5% by year-end.

• Real GDP growth projected around 1% in 2025.

• Labor market is slowing but still in good shape.

Fed Bostic also spoke yesterday. His views on policy and the economy: See inflation building.

• Bostic said he would wait before cutting rates, emphasizing the need for more clarity on inflation trends.

• The recent CPI data suggests inflation pressures may be building, possibly indicating an inflection point.

• He emphasized that policy decisions must be data-driven, not based on headlines.

On Tariffs and Economic Impact

• Businesses report that the current tariff environment is not a textbook case, leading to unusual pricing strategies.

• Believes it may take until 2026 to fully understand the inflationary impact of tariffs.

• The Fed will need to monitor how tariffs affect both prices and consumer behavior over time.

Policy Framework and Communication