U.S. inflation remains too high! Kansas City Fed President takes a cautious stance on further rate cuts

Against the backdrop of renewed inflationary pressures in the United States, at least one Federal Reserve official is cautious about further interest rate cuts.

According to the Zhitong Finance APP, Federal Reserve Bank of Kansas City President Esther George stated on Monday that the current interest rate policy is "slightly restrictive," but "is at the right level," and the central bank does not need to rush to take more easing measures for the time being.

In her speech at the Kansas City CFA Association, George pointed out that the current inflation level in the U.S. remains too high, and the Federal Reserve must maintain its "credibility and determination" regarding prices, insisting on bringing the inflation rate back to the 2% target. She stated, "History tells us that while inflation is generally undesirable, not all inflation needs to be fought at the same cost. Inflation caused by supply and demand imbalances, like that during the COVID-19 pandemic, can be controlled without causing severe unemployment or economic recession."

At the September policy meeting, the Federal Open Market Committee (FOMC) lowered the target range for the federal funds rate by 25 basis points to 4%–4.25% to address the risks of a slowing labor market. George, as a voting member at the time, also supported this rate cut. She explained, "Given the signs of cooling in the labor market, I believe this move is an appropriate risk management strategy to balance inflation and employment risks."

However, with the preferred inflation indicator of the Federal Reserve, the Personal Consumption Expenditures Price Index (PCE) recording 2.7% as of August, and the core PCE (excluding food and energy) at 2.9%, George hinted at her reservations about further rate cuts. She is particularly concerned about the rising trend in durable goods prices, including long-lasting items such as automobiles, appliances, and furniture. "Although the overall price of durable goods has only increased by about 1%, this is noteworthy, as durable goods prices have been on a downward trend for nearly 30 years, aside from pandemic disruptions."

She also noted that price increases are becoming more widespread, with about 70% of consumption categories reporting price increases at the beginning of the year, rising to nearly 80% by August. She emphasized, "With inflation still elevated, monetary policy should continue to suppress demand growth to create space for supply expansion, thereby alleviating price pressures." She warned that excessive stimulation of demand at this time could lead to businesses gaining stronger pricing power and passing on tariff costs more significantly to consumers.

Regarding the impact of a new round of tariffs, George expects its inflationary push to be "relatively mild," stating that this indicates the current policy is "already moderate," rather than suggesting that significant rate cuts should continue. On the issue of stable inflation expectations, she also holds a cautious view: "I believe inflation expectations are not an input signal for Federal Reserve policy, but rather a result of our decision-making."

George acknowledged that the recent cooling of the labor market is worth noting, but she believes it aligns with the direction of alleviating price pressures and achieving the 2% inflation target. According to the Kansas City Fed's composite labor market indicator, while the job market has clearly cooled, it remains at a healthy level overall. As of August, the unemployment rate in the U.S. was 4.3%.

She emphasized that future policy decisions will still rely on data-driven approaches. She stated, "I look forward to the government reopening as soon as possible so that official data can resume publication." She also mentioned that she is currently closely monitoring alternative labor and price data from the private sector