Federal Reserve Governor Kugler and Kansas City Fed President Schmidt stated on June 5 that the urgency of current inflationary pressures outweighs the potential downside risks in the labor market, suggesting support for maintaining monetary policy at current levels for a longer period.
Key Points
Kugler: Inflation faces greater upward risks, while employment and output have potential downside risks, supporting the decision to keep the federal funds rate (4.25%-4.50%) unchanged;
Tariffs have driven prices up, and while there are signs of economic cooling, it has not significantly slowed down;
Attention to the potential inflation effects of policies such as immigration restrictions and tax cuts (e.g., tight labor markets may lag in pushing up wages).
Schmidt: Optimistic about avoiding a recession in the short term, but more concerned about the immediate effects of tariffs on inflation, believing that the extent and lag effects of price increases are still unclear.
Market Divergence and Data Outlook
Some officials advocate to “ignore” tariff inflation, leaning towards interest rate cuts in the second half of the year; Powell and others believe it is necessary to balance inflation and employment risks, advocating a wait-and-see approach.
May non-farm employment is expected to increase by 130,000 (previous value 177,000), with the unemployment rate stable at 4.2%; May CPI may accelerate again due to tariff impacts, with April PCE inflation rate at 2.1% (slightly above the 2% target).
The Federal Reserve is likely to keep rates unchanged at the June policy meeting, entering a quiet period next week.
