The US Dollar traded near a four-week high against the euro on Thursday, as signs of stickiness in US inflation reinforced expectations that the Federal Reserve would avoid a super-sized interest rate cut next week. Two Federal Reserve policymakers, Governor Adriana Kugler and San Francisco Fed President Mary Daly, emphasized the delicate balancing act facing the US central bank this year.
Kugler and Daly both stated that the Fed’s job in taming inflation is not yet done, but they also do not want to risk damaging the labor market in the process. Kugler noted that the Fed is “fully aware that we are not there yet” in terms of reaching its 2% inflation goal, but also wants to keep the unemployment rate from increasing rapidly. Daly echoed this sentiment, stating that she would not want to see further slowing in the labor market, only gradual movements.
The remarks highlight the Fed’s challenge in finding the right balance between controlling inflation and supporting the labor market. The Fed has already lowered short-term rates by a full percentage point last year, and policymakers expect to reduce rates more slowly this year to bring inflation down to the Fed’s 2% goal.