**Governor Adriana D. Kugler Discusses U.S. Economic Outlook and Monetary Policy**

Governor Adriana D. Kugler addressed the Economic Club of New York, providing insights into the current state of the U.S. economy, its future outlook, and the implications for monetary policy. She highlighted that while the labor market remains robust and stable, economic activity is growing at a more moderate pace compared to the latter half of last year.

Kugler noted that the labor market is close to the Federal Open Market Committee's (FOMC) goal of maximum employment, but changes in trade and policy could potentially increase the unemployment rate. Higher import tariffs, in particular, have the potential to raise inflation throughout the year. Although progress has been made toward the FOMC's 2 percent inflation target, goods inflation has escalated, and various data sources indicate emerging inflationary pressures.

In recent months, the U.S. has seen increases in import tariffs and retaliatory tariffs on its exports. Along with proposed changes in immigration, fiscal policy, and regulation, these factors could impact the economic landscape. Kugler emphasized that the FOMC must account for these policies to best achieve its goals of maximum employment and stable prices. The first quarter of 2025 saw a slight decline in GDP, primarily due to a surge in imports ahead of tariff hikes, suggesting a potential reversal in the near future.

Despite some fluctuations, the labor market continues to show resilience. Employers added 177,000 jobs in April, maintaining the unemployment rate at a steady 4.2 percent. Indicators of job openings and quits suggest a balanced labor market, with the quits rate slightly below the levels seen in 2019.

Looking ahead to the May employment report, forecasts predict the addition of 130,000 jobs, indicating a potential cooling of the labor market. Although initial unemployment claims remained low, there have been modest increases in layoff notices and mentions of layoffs in recent data.

On the inflation front, progress toward achieving the 2 percent target has decelerated. Core inflation, excluding volatile food and energy prices, stood at 2.5 percent in April. Kugler considers the current monetary policy stance as modestly restrictive, aiming to sustain 2 percent inflation in the long run. She highlighted the ongoing challenges posed by tariffs and noted that the pass-through of tariffs into prices appears to be relatively quick.

Nontraditional data sources, including various surveys, have become increasingly valuable in providing timely economic insights. Such data suggest a moderation in economic activity growth and potential increases in future inflation due to higher tariffs. Surveys indicate rising price expectations among businesses and consumers, with tariffs being a significant concern.

In conclusion, Kugler believes that the current monetary policy stance is appropriate given the economic conditions. With a resilient labor market and inflation risks, she supports maintaining the FOMC's policy rate at its current level to navigate potential changes in the macroeconomic environment.