Mary Daly, a 2024 FOMC voting member and president of the San Francisco Fed, said interest rates are currently suppressing the U.S. economy, but it may take "more time" to get inflation back to the Fed's target.
"We've been restrictive, but it may take more time to get inflation down," Daly said Thursday during a discussion hosted by George Mason University's Mercatus Center, echoing remarks made by Federal Reserve Chairman Jerome Powell on April 16.
Daly said recent data showing a pickup in price pressures early this year highlighted why officials cannot declare victory until they are confident inflation is under control. “There is considerable uncertainty about what inflation will look like in the coming months and how we should respond,” she said.
The comments underscored Fed officials’ willingness to hold the central bank’s benchmark interest rate steady until they are more confident that inflation will continue to slow toward their 2% target.
Prices rose 2.7% year-on-year in March, as measured by the Federal Reserve's preferred inflation index, PCE. The growth was stronger than economists expected and a pickup from the previous three months. Fed officials have kept interest rates in a range of 5.25% to 5.5% since July last year, the highest level in 23 years.
Powell said last week that rate cuts were still under consideration, but the timing was uncertain. Investors have scaled back expectations for rate cuts this year after a string of higher-than-expected inflation data, and now see one or two cuts in 2024.
Daly said she doesn’t think Fed officials need to slow the economy to ease inflation further. She said if the labor market starts to weaken, then officials could consider lowering interest rates, though recent softness in data is normal. “It’s too early to declare a fragile labor market or a recession,” she said.
U.S. money market fund assets rose for a third straight week as expectations mounted that short-term interest rates would continue to move higher after Federal Reserve officials signaled they were in no rush to cut rates.
Data from the Investment Company Institute of the United States showed that in the week ending May 8, about $31.1 billion flowed into U.S. money market funds, and total assets increased to $6.03 trillion from $6 trillion in the previous week. The assets of government funds (which mainly invest in securities such as Treasury bills, repurchase agreements and agency debt) increased to $4.88 trillion, an increase of $20 billion. The assets of funds that tend to invest in high-risk assets such as commercial paper increased to $1.03 trillion, an increase of $8.6 billion.
The article is forwarded from: Jinshi Data