Fed's Daly expresses caution on premature victory over inflation

San Francisco Federal Reserve President Mary Daly recently voiced concerns about the effectiveness of the central bank’s interest rate hikes in tackling inflation. In a CNBC interview Today, Daly highlighted the risk of declaring an early victory against inflation, despite some positive signs in economic data.

Daly used a horse rider analogy to describe the Federal Reserve’s current monetary policy stance as “sufficiently restrictive.” She stressed the importance of closely watching economic indicators to ensure that the policy is indeed restrictive enough to bring inflation down to the Fed’s 2% target.

This commentary comes after financial markets reacted to Federal Reserve Chair Jerome Powell’s previous statements, which cast doubt on whether the current policy approach would suffice to curb inflation. The Federal Open Market Committee (FOMC) has recently maintained interest rates at a range between 5.25% and 5.5%, marking a 22-year high and signaling a tight monetary environment.

As Daly is poised to become a voting member of the FOMC in 2024, she refrained from predicting future rate decisions. Instead, she underscored the Fed’s readiness to adjust its course based on incoming data. Her current outlook echoes her sentiments from a speech given on November 12, 2018, in Idaho Falls, where she similarly communicated cautious optimism regarding the U.S. economic trajectory.

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