US Fed Governor: There are upside risks to inflation, and the current interest rate should remain unchanged

On Thursday (June 5) local time, US Fed Governor Adriana Kugler stated that tariffs could pose a higher inflation risk, and therefore she supported maintaining interest rates unchanged at present.

"At this stage, I see an increase in upside risks to inflation and downside risks to employment and output growth. Therefore, if upside risks to inflation persist, I will continue to support the Federal Open Market Committee (FOMC) in maintaining the current policy interest rate unchanged," Kugler said in a speech at the Economic Club of New York on Thursday.

The US Fed's next interest rate decision meeting will be held from June 17 to 18. Investors currently widely expect the US Fed to maintain interest rates unchanged in June and July, before restarting the interest rate cut cycle later this year.

The target range for the federal funds rate is currently 4.25% to 4.50%. The US Fed initiated an interest rate cut cycle in September last year, and after three consecutive rate cuts, reduced the benchmark interest rate by 100 basis points. However, so far this year, the US Fed has not adjusted interest rates again.

Given the uncertainties brought about by US President Trump's tariff policies, policymakers are cautious about continuing to cut interest rates.

"I believe our current monetary policy stance has prepared us for any changes in the macroeconomic environment," Kugler said.

"The process of inflation slowdown has slowed, and we have already seen the impact of higher tariffs. I expect these impacts to continue pushing inflation higher in 2025," Kugler stated.

Kugler pointed out that while changes in trade and other policies under the Trump administration may lead to an increase in the unemployment rate, so far, the labour market has remained stable.

She said that spending data in April and multiple surveys, including the US Fed's Beige Book, have shown a slowdown in economic activity, but "it has not yet significantly slowed down."

On the other hand, the inflationary effects of tariffs have begun to emerge, as evidenced by the rebound in core goods inflation. Studies have shown that tariffs have not only pushed up the overall price level but may also continue to have a rapid upward effect.

Meanwhile, short-term inflation expectations have also risen. Although most long-term inflation expectations remain stable, Kugler said she is closely monitoring the significant rise in inflation expectations in the University of Michigan survey.