San Francisco Fed President Mary Daly stressed the importance of caution and patience in deciding when to initiate interest rate cuts, urging the Federal Reserve to resist the temptation to act hastily.
Speaking at a conference in Washington, Daly, who is a voting member of the Fed’s rate-setting committee this year, emphasized that the economy is healthy and that price stability is within reach. However, she also noted that there is more work to be done.
Daly highlighted the need for the Fed to “resist the temptation to act quickly when patience is needed and be prepared to respond agilely as the economy evolves.” She emphasized the importance of finishing the job with fortitude, suggesting that a measured and cautious approach is necessary.
US House Representative (Credits: The New York Times)
The US central bank is currently in a holding pattern after raising rates to a 23-year high to combat surging prices. While inflation has been edging closer to the Fed’s long-term target of two percent in recent months, officials have indicated that they expect to begin cutting interest rates this year.
However, there is disagreement among Fed officials regarding the timing of such cuts, with some expressing concern about prematurely declaring victory over inflation.
Daly cautioned against being overly optimistic about projections that suggest the US economy is on track to defeat inflation, noting that projections and expectations are based on views of what might happen and require more time and data to materialize.
She suggested that the Fed could afford to take a more gradual approach to rate cuts, emphasizing that gradual does not mean slow or weak, but rather a measured response that avoids abrupt changes, particularly in the face of uncertainty.
Futures traders have also adjusted their expectations, with a probability of less than 50 percent for rate cuts at the upcoming March and May meetings.
However, there is a probability of over 80 percent that the Fed will have cut rates by June 12, according to data from CME Group. This suggests that while the likelihood of rate cuts in the near term is uncertain, the market expects the Fed to act relatively soon.
