San Francisco, CA – Mary Daly, president of the Federal Reserve Bank of San Francisco, has expressed caution about further interest rate cuts, stating that she sees no immediate need for such a move given the current economic landscape.
Speaking at the American Economic Association's annual meeting in San Francisco, Daly emphasized that while the Fed has made significant progress in taming inflation, more time is needed to assess the full impact of its policy decisions.
"We have more time to assess where the economy is actually going and what further actions may be needed," Daly said. "Clearly, our work is not done."
The Fed lowered its benchmark interest rate by 25 basis points in December, bringing it to a range of 4.25% to 4.5%. However, Daly argued that the current pace of disinflation has stalled and the economy remains resilient, making further rate cuts premature.
"I think the policy is appropriate for where we are right now," Daly said. "We've had an opportunity to be more patient and gradual, and we have more time to gather data on how the economy is evolving before making further decisions."
Daly acknowledged that the Fed's latest economic projections anticipate two more rate cuts this year, but she stressed that these forecasts are subject to change as economic conditions evolve.
"Those are just forecasts," she said. "Those are not set in stone. If conditions change, we'll have to reassess."
The Fed official also commented on the incoming administration, saying, "Out of respect for the new president and the incoming administration, I'm not going to speculate on the policies of the new administration."
Daly reiterated the Fed's dual mandate of achieving maximum employment and price stability, emphasizing that these goals remain unchanged regardless of who occupies the White House.
Meanwhile, Federal Reserve Board Governor Adriana Kugler echoed Daly's sentiments, cautioning against premature celebrations of victory over inflation.
"We know we're not there yet," Kugler said. "Nobody is popping champagne."
While acknowledging the progress made in fighting inflation, Kugler expressed concerns about the potential risks of tightening monetary policy too aggressively, which could lead to a sharp increase in unemployment.
"At the same time, we don't want to see unemployment spike up sharply from where it is now," she said.
Kugler's comments suggest that the Fed remains vigilant about the potential for a resurgence in inflationary pressures, and is prepared to adjust its policy stance accordingly.
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