Inflation has been tamed! Fed voting committee: It's time to consider rate cuts, but the steps should not be too big
With the steady cooling of US inflation, there is no suspense about the Fed's rate cut in September, it's just a matter of how much. Regarding the prospect of rate cuts, Mary Daly, president of the Federal Reserve Bank of San Francisco, recently released the latest signal. She believes that it is time for the Federal Reserve to consider rate cuts, but the steps should not be too big.
In an interview with the media, Daly said that recent economic data made her "more confident" that inflation has been controlled. It's time to consider lowering borrowing costs from the current 5.25%-5.5%.
According to official data released by the United States last week, the consumer price index (CPI) rose 2.9% year-on-year in July, falling for the fourth consecutive month, and returning to the "2-digit" for the first time since March 2021.
"After the first quarter of this year, inflation has been gradually approaching 2%. We are not there yet, but this obviously makes me more confident that we are moving towards price stability." Daly said on Thursday.
Daly noted that as inflation retreats and the labor market balances, the Fed has to "adjust policy rates to match our current and expected economic conditions."
Daly said the Fed wants to ease the "restrictiveness" of policy while still exercising some restraint to "fully accomplish" its inflation target.
She also said that if the Fed does not adjust monetary policy in a timely manner based on inflation and economic growth, then a very bad outcome will occur: on the one hand, inflation control cannot be achieved; on the other hand, the labor market will become unstable.
Daly has a vote at this year's FOMC meeting.
Calling for a "gradual" approach to rate cuts
Daly said the Fed needs to take a gradual approach to lower borrowing costs.
Daly downplayed the need for a major policy response (big rate cuts) to signs of a weakening labor market. She said there was little sign that the U.S. economy was heading for a deep recession.
Investors are betting that the Fed will cut rates for the first time in four years at its meeting next month. The market expects about a 70% chance of a 25 basis point cut, while a few expect a 50 basis point cut.
