The dollar traded near a four-week high versus the euro on Thursday after signs of some stickiness in U.S. inflation reinforced expectations that the Federal Reserve would avoid a super-sized interest rate cut next week.
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Two Federal Reserve policymakers on Saturday said they feel the U.S. central bank’s job on taming inflation is not yet done, but also do not want to risk damaging the labor market in the process.
The remarks, from Governor Adriana Kugler and San Francisco Fed President Mary Daly, highlight the delicate balancing act facing the U.S. central bank this year, after lowering short-term rates by a full percentage point last year.
Fed policymakers in December signaled they expect to reduce rates more slowly this year to bring inflation, which registered 2.4% in November, down to the Fed’s 2% goal.
“We are fully aware that we are not there yet – no one is popping champagne anywhere,” Kugler said at the annual American Economic Association conference in San Francisco. “And at the same time…we want the unemployment rate to stay where it is” and not increase rapidly. In November, unemployment was 4.2%.
“At this point, I would not want to see further slowing in the labor market — maybe gradually moving around in bumps and chunks on a given month, but certainly not additional slowing in the labor market,” said Daly, who was speaking on the same panel.
