WASHINGTON, Feb 7 (Reuters) - U.S. Federal Reserve Governor Adriana Kugler said on Wednesday she is "optimistic" inflation will continue to decline, but added policymakers need more assurance that is the case before lowering the benchmark interest rate.
"I will remain focused on the inflation side of our dual mandate until I am confident that inflation is returning durably to our 2% target," Kugler said in her first policy speech since joining the Fed's Washington-based board in September.
While sensitive to the Fed's employment mandate as well she said she is confident at this point that job growth will continue.
"I am pleased by the progress on inflation, and optimistic it will continue," Kugler said, noting that she sees cooling wage growth and a shift to less frequent price resetting by businesses as reasons to think services inflation in particular will continue to ease.
But while she characterized the risks to employment and inflation as "roughly balanced," she said that if progress on inflation stalls the policy rate may need to remain at its current 5.25% to 5.5% range longer than expected.
"At some point, the continued cooling of inflation and labor markets may make it appropriate to reduce the target range for the federal funds rate," Kugler said. "On the other hand, if progress on disinflation stalls, it may be appropriate to hold the target range steady at its current level for longer to ensure continued progress."
The Fed at its meeting last week held the policy rate constant, as it has since July, while flagging that rate cuts may be on the horizon, with many analysts expecting an initial reduction at the central bank's May meeting.
Reporting by Howard Schneider; Editing by Andrea Ricci
