San Francisco Fed President Daly Warns of Possible Rate Cuts Next Year to Prevent Overtightening


In a recent statement at the Kansas City Federal Reserve's annual Economic Policy Symposium in Jackson Hole, San Francisco Fed President Mary Daly indicated that rate cuts might be necessary next year to prevent overtightening, according to the Wall Street Journal.

Daly emphasized the importance of managing inflation while avoiding detrimental impacts on employment. "We don't want to give people price stability but take away jobs," she mentioned in an interview with the Journal. While the Federal Reserve aims to bring inflation down to its 2% target, Daly stressed the need to navigate this process carefully, minimizing disruptions to the job market.

Daly's perspective aligns with the median projections of the 19 Fed policymakers released last week. The majority of them anticipate a 75 basis point reduction from the current 5.25%-5.50% target range for the policy rate, with inflation projected to decrease to around 2.4% by the end of the year.

The current unemployment rate stands at 3.7%, slightly above the level when the Fed began raising interest rates from near zero in March 2022. Daly expressed concern about the potential for a significant increase in the unemployment rate and emphasized the importance of avoiding such spikes.

Given the downward trajectory of inflation, Daly highlighted that maintaining steady rates could lead to increased real borrowing costs for households and businesses. She cautioned against the risk of overtightening and stressed the need for a cautious approach in the current economic environment.

As the Fed continues to monitor economic indicators and assess the appropriate policy measures, Daly's insights provide a glimpse into the delicate balance the central bank aims to strike between inflation management and labor market stability in the coming year.

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