Federal Reserve Governor Kugler issued a warning on Tuesday (March 25) that although the current interest rate policy is still restrictive and "in a good position", the process of inflation falling back to the 2% target has significantly slowed down since last summer, and the unexpected rise in commodity inflation in recent times has added frost to the snow. He emphasized that this trend, coupled with the soaring consumer inflation expectations, needs to raise high vigilance among decision-makers.

Inflation data shows a red light

Kugler cited the latest Consumer Price Index (CPI) and Producer Price Index (PPI) in the United States, pointing out that the year-on-year increase in personal consumer expenditure price index in February is expected to remain stable at 2.5%, but the change in commodity inflation from negative to positive is particularly tricky - this category, which used to suppress overall inflation for a long time, has now become an accomplice in pushing up prices. He specifically named some subcategories as're accelerating inflation 'and bluntly stated that such trends are' useless'.

Expected warming exacerbates risks

A survey conducted by the University of Michigan shows that consumer inflation expectations have significantly jumped recently, with Kugler attributing some of the reason to the "Trump administration's proposed comprehensive import tariff plan". He warned that the acceleration of prices and the rise in expectations form a negative feedback loop, which may repeat the mistakes of "inflation fluctuations in the past few years" and require continuous and close monitoring.

Economic signal contradiction to be resolved

Despite indicators such as retail sales suggesting weak economic activity at the beginning of the year, the labor market showed resilience in February. This differentiation makes policy trade-offs more complex, especially as Kugler's term expires in 2025, and his statement may indicate that the Fed's internal anxiety about inflation is escalating.

Summary and outlook

Kugler's speech sends a clear signal: under the triple challenges of commodity inflation "defection", tariff shadow, and pressure on expected management, the battle against the Federal Reserve's 2% inflation target may enter a new stage. The market needs to be prepared for a possible extension of restrictive monetary policy, and data in the coming months, especially the trend of commodity prices, will become a key factor in determining the timing of the shift in interest rate policy.