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Kugler's View on "Soft Landing" Amidst Falling Inflation
Fed Governor Adriana Kugler vocalized her optimism about the U.S. economy achieving the rarely seen "soft landing" - a decline in inflation coupled with a robust labor market. She pointed out the current context where inflation expectations continue to be steady, and a wage-price spiral, thankfully, has been sidestepped by the Fed.
Continued Disinflation Amid Healthy Labor Market
In her scheduled speech for the annual economic summit at the Stanford Institute for Economic Policy Research Institute, Kugler expressed cautious confidence. "There's a strong possibility that we can climb further towards disinflation without significantly compromising the labor market condition," said Kugler.
Policy Rate and Fed's Reactiveness
Interestingly, Kugler fell short of detailing her views on the timing or the extent of the Fed's policy rate cut, a rate it had significantly shot up during 2022 and 2023 and has sustained in the 5.25%-5.5% bracket since the previous summer.
Fed's Quick Response Cancels Out Inflation
Nevertheless, Kugler's hopeful outlook stems from the prompt response the Fed has shown in increasing its rates and negating the supply shocks that stoked inflation. This quick action has surprisingly eased price pressures while the labor market remained resilient.
Threat of a Wage-Price Spiral Tamed
After COVID-19, inflation climbed due to sudden and harsh restrains on the availability of goods and labor, catching businesses off guard. However, inflation descended just as swiftly when the supply of labor and goods improved over the years. This has led to a reduction in wage growth, Kugler pointed out, likely reducing the chance of a wage-price cycle that could have rooted inflation firmly.
Inflation Expectations Continues to Remain Steady
Moreover, Kugler noted, inflation expectations have kept constant, with businesses less frequently resetting prices than during the pinnacle of the inflation climb, signaling an inflation cool-down period.
