© Reuters. FILE PHOTO: Adriana Kugler testifies before a Senate Banking Committee hearing on her nomination to be a member of the Federal Reserve Board of Governors, on Capitol Hill in Washington, U.S., June 21, 2023. REUTERS/Jonathan Ernst/File Photo
(Reuters) – Federal Reserve Governor Adriana Kugler on Friday signaled she sees the elusive “soft landing” of falling inflation amidst a healthy labor market within reach for the U.S. economy, noting that inflation expectations remain anchored and the Fed has avoided a wage-price spiral.
“I am cautiously optimistic that we will see continued progress on disinflation without significant deterioration of the labor market,” Kugler said in remarks prepared for delivery to the Stanford Institute for Economic Policy Research Institute’s annual economic summit.
Kugler notably did not lay out her expectations for when or how fast the Fed should cut its policy rate, which it drove up rapidly in 2022-2023 and has held in the 5.25%-5.5% range since last July.
But she said her optimism stems from how quickly Fed rate hikes and the reversal of the supply shocks that contributed to inflation have eased price pressures even as the labor market stayed strong.
Inflation surged post-pandemic because of sharp and rapid constraints on the supply of both goods and labor, to which businesses were not able to quickly adjust, she noted. But it has dropped nearly as rapidly, as supply of both workers and goods came on line last year.
Wage growth slowed as a result, she noted, likely putting to rest the threat of a wage-price spiral that could have allowed inflation to entrench.
And inflation expectations have remained anchored, with businesses resetting prices less often than at the height of the inflation surge – a sign, she said, of cooling inflation.
