San Francisco Federal Reserve President Mary Daly has stated that US monetary policy is currently well positioned to respond to economic developments, but future decisions will require careful and deliberate calibration due to ongoing uncertainties around inflation and employment.
Daly highlighted that recent economic data have been encouraging. Growth projections remain solid, the labour market is stabilising, and inflation is expected to ease through 2026. These trends suggest that the economy is approaching a balanced state following a period marked by high inflation and slowing employment.
Last year, the Federal Open Market Committee (FOMC) cut interest rates by a total of 75 basis points. These reductions were a response to a significant slowdown in labour-market momentum and inflation outcomes that were milder than initially expected. Daly explained that these moves were intended to prevent the economy from weakening too sharply while maintaining progress towards price stability.
Despite these positive developments, Daly warned that uncertainty remains high. Risks persist on both sides of the Federal Reserve’s dual mandate: maintaining price stability and achieving maximum employment. This ongoing uncertainty underscores the importance of a measured and patient approach going forward. Daly emphasised the need to balance the risk of over-tightening against the risk of underdoing policy adjustments.
Her comments precede the Fed’s policy meeting scheduled for 27–28 January, where rate hikes are widely expected to pause, with the current range holding at 3.50% to 3.75%. Market observers interpret Daly’s description of policy being in a “good place” as an indication that the Fed feels comfortable maintaining current rates while monitoring the impact of previous easing measures on the economy.
Daly also stressed that policy decisions should not be based solely on individual economic reports. While data, analysis, and modelling remain essential, she highlighted the importance of gathering direct feedback from businesses, households, and communities. This qualitative intelligence provides valuable insight into underlying conditions and future trends that may not yet be evident in official statistics.
By integrating quantitative data with real-world observations, Daly believes the Federal Reserve can respond more effectively to shifts in the economic outlook and keep monetary policy appropriately calibrated as the economy enters its next phase.
Original Source: Eamonn Sheridan of investinglive.com
