Mary Daly, President of the Federal Reserve Bank of San Francisco, stated that she anticipates the Federal Reserve will continue to lower interest rates to guard against further weakening of the labor market. She firmly supported the previous dovish decision to cut rates by 50 basis points and, looking ahead, said that the decline in inflation necessitates adjustments by the Federal Reserve. However, other Federal Reserve officials have indicated that they prefer to slow the pace of rate cuts.
"As of now, I haven't seen any information that suggests we (the Federal Reserve) won't continue to lower interest rates," Daly said on Monday, October 21st, at the Wall Street Journal TechLive conference held in Laguna Beach, California.
She continued, "For an economy that is already on the path to 2% inflation, this is a very tight interest rate, and I don't want to see the labor market slide further."
U.S. policymakers began lowering rates at last month's meeting, the first time since the pandemic began. Amid growing concerns about the deterioration of the labor market and inflation cooling down to near the Federal Reserve's 2% target, they cut the benchmark rate by 50 basis points to a range of 4.75% to 5%.
Subsequent economic data has shown that hiring in recent months has been stronger than initially reported, and market participants now expect the Federal Reserve to make a smaller rate cut of 25 basis points at their policy meeting on November 6th and 7th.
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Daly indicated that the decision to cut rates by 50 basis points in September was "very close" to a decision to cut by 25 basis points, but she strongly supported the 50 basis point cut.
However, it is noteworthy that she did not make any comments on the future pace of rate cuts.
Daly stated, "We will continue to adjust policy to ensure it is appropriate for the current economy and the developing economy."
Federal Reserve officials spoke earlier on Monday in other settings, indicating that they prefer a slower pace of rate cuts than what was implied by the 50 basis point cut in September.
Dallas Fed President Logan mentioned that in the face of high economic uncertainty, officials should proceed with caution and believes that "a strategy of gradually lowering the policy rate to a more normal or neutral level can help manage risks and achieve our goals."Neel Kashkari, the Minneapolis Federal Reserve Chairman who is regarded as the "Hawk King," stated that he "expects the Federal Reserve to further lower interest rates slightly in the coming quarters to reach a neutral level."
He explained, "At present, I anticipate that interest rates will be lowered slightly in the coming quarters to reach a neutral level, but this will depend on the data." He was referring to the level at which interest rates neither stimulate nor restrict the economy.
Kansas City Federal Reserve Chairman Jeff Schmid said that he wishes "to avoid making overly large moves, especially considering the uncertainty of the ultimate policy objectives."
In his first public speech since August, Schmid expressed his desire for the Federal Reserve's policy cycle to become "more normalized," allowing the Federal Reserve to make "moderate" adjustments to maintain economic growth, price stability, and full employment. He indicated that a slower pace of rate cuts would also enable the Federal Reserve to find the so-called neutral level, where policy neither drags down the economy nor stimulates it.
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