No Rate Cut Likely Yet, Fed’s Kugler Suggests

Federal Reserve Board of Governors member Adriana D. Kugler offered a cautiously steady assessment of the U.S. economy Thursday in a speech to the Economic Club of New York, signaling a federal funds rate cut is unlikely for now, despite ongoing pressure from the White House. 

“The short version is that the labor market appears resilient and stable and economic activity is continuing to grow, although at a more moderate pace than in the second half of last year,” Kugler said in opening.

Kugler outlined a complex outlook shaped by trade policy, sticky inflation, and resilient employment. The implication is clear: the Fed is not yet ready to ease its policy stance — and inflation may even tick higher in the short term due to tariffs and other headwinds.

Key Economic Signals: Uncertainty Meets Resilience

There was a slight GDP decline in Q1 2025, which Kugler attributed to a temporary surge in imports ahead of tariff hikes. April data show “personal disposable income increased at a healthy pace,” she said, but consumption grew more slowly, suggesting “consumers are becoming more cautious.”

The labor market, a key component of the Fed’s dual mandate to achieve maximum employment and stable prices, remains strong. Employers added 177,000 jobs in April, she noted, and the unemployment rate “was steady ... in the historically low range of 4% to 4.2%.” 

However, Kugler also acknowledged modest increases in layoffs and cooling in employment indicators.

Inflation Pressures Haven’t Eased Enough

Kugler highlighted concerns that inflation progress is stalling, particularly for core inflation. Core inflation “came in at 2.5%,” she said, which is higher than the Fed’s 2% target. 

Meanwhile, the effects of rising tariffs are beginning to show, with potentially more to come. Research by Fed staff estimated that earlier tariff increases have already nudged prices upward — and further inflationary impact is expected as import surges subside.

“Should elevated tariffs persist, even just in the short run, larger effects may be coming soon,” she warned.

Tariff-Fueled Pressure

Kugler gave significant weight to data sources such as Fed surveys and private-sector indexes to get a timely read on economic conditions. These sources, she said, show that “price increases are coming,” and that “expectations for core PCE inflation over the next year moved up from 2.4% in April to 2.9% in May.”

Notably, consumer expectations regarding inflation from a University of Michigan survey spiked, she pointed out, with “consumers expect[ing] inflation in the next year to average 6.6%.”

Kugler emphasized that short-term inflation expectations ”may give businesses more leeway to raise prices, thus increasing the persistence of inflation.”

Takeaway: Fed On Hold, Eyes On Inflation Risks

Kugler’s message reinforces the likelihood of steady federal funds rates in the near term, even as buyers and borrowers hope for relief.

“I see greater upside risks to inflation at this juncture and potential downside risks to employment and output growth down the road,” she concluded. “This leads me to continue to support maintaining the [Federal Open Market Committee’s] policy rate at its current setting.”

While the Fed stands ready to adjust if economic conditions shift sharply, for now, it appears to be driving cautiously — with no immediate pivot in sight.