San Francisco Fed President Mary Daly confirmed today that despite last month's rate cut, the Fed's monetary policy continues to effectively reduce inflation.
Speaking at an event at New York University, Daly described the latest adjustment as a necessary measure to balance progress in reducing inflation with the need to maintain control over economic growth.
The Fed lowered the federal funds rate by half a percentage point in September, bringing its target range to between 4.75% and 5%. Daly called it a “right-sizing” of interest rate policy. “We’ve made progress and we’re loosening the policy reins a little bit, but we’re not letting go,” Daly said in a prepared remarks. Even with that adjustment, policy remains restrictive, Daly said, and the Fed continues to put downward pressure on inflation to meet its 2% target.
While Daly did not specify his expectations for future monetary policy moves, he did say that it was important for the Fed to remain vigilant and conscious in managing inflation. Achieving the target inflation rate was crucial, he said, especially in the context of a labor market characterized by full employment.
The Fed’s decision to cut its target interest rate last month was based on easing inflationary pressures and emerging risks to the labor market. The Fed also said it planned to cut rates by another 50 basis points by the end of the year. However, stronger-than-expected September hiring figures raised questions about the pace and scope of future rate cuts, as they suggested a stronger-than-expected labor market.
Daly said he was optimistic about the state of the economy, noting that inflationary pressures had eased significantly and the labor market had stabilized. “The economy is clearly in a better place,” Daly said, adding that the risks to the Fed’s dual mandate of stable prices and full employment were now balanced.
Daly said the current unemployment rate of 4.1% is in line with the long-term average and indicates that labor market conditions are close to pre-pandemic levels. Daly also noted that the labor market is no longer a significant source of inflationary pressure, pointing to the Fed's efforts to reduce inflation while managing employment levels as paying off.
*This is not investment advice.