In a speech at the National Association for Business Economics conference in Washington, D.C., San Francisco Fed President Mary Daly stressed the importance of patience in addressing inflationary concerns. She cautioned against acting too quickly to cut interest rates, as there are risks that the factors currently pushing down inflation could reverse.
Daly acknowledged that the expectation of three rate cuts was a reasonable baseline for monetary policy this year. However, she emphasized the need to resist the temptation to act quickly and instead be prepared to respond agilely as the economy evolves. This cautious approach is necessary to ensure that the Federal Reserve can effectively address inflationary concerns without causing further instability in the economy.
The stock market reacted to Daly’s speech with a decline in stock prices, while the yield on the 10-year Treasury note rose to 4.29% following a stronger-than-expected producer-price index report. This indicates that investors were anticipating a more aggressive stance from the Federal Reserve in addressing inflation.
Daly dismissed the notion that the “last mile” of inflation would be harder to achieve, stating that she doesn’t see evidence of this. She believes that progress has been made in reducing inflation without causing significant damage to the economy. However, Daly also acknowledges that more work needs to be done to achieve sustainable price stability.
One potential risk to progress on inflation is if the workforce doesn’t continue to grow and productivity doesn’t rise. Daly highlights the importance of these factors in maintaining economic stability and ensuring continued progress in reducing inflation. Additionally, she mentions the risk of a faltering labor market but clarifies that the Fed does not currently see this as a concern.
Overall, Daly’s speech emphasizes the need for patience and careful consideration in addressing inflationary concerns. While progress has been made, there is still work to be done to achieve sustainable price stability. The Federal Reserve must remain vigilant and responsive to changes in the economy, while also considering potential risks and maintaining a cautious approach to interest rate cuts.
