Fed voting committee member Daley: Inflation data is "very good," but target has not been achieved yet

San Francisco Fed President Daly said that recent inflation data has been "very good," but the Fed has not yet achieved price stability.

On Thursday, at a bank financing conference sponsored by the Dallas and Atlanta Feds, Daly said that before calling for rate cuts, she is looking for more confidence that inflation is returning to the Fed's 2% target level. She stated, "We are not at price stability now. We have had some very good data, but even though inflation data earlier this year was positive, and the data is good, we have not yet achieved sustainable inflation returning to the 2% target."

As a voting member of the monetary policy this year, Daly reiterated last week's comments that the risks facing the labor market and price stability are better balanced, but the Fed remains committed to the 2% inflation target. Daly said, " We are at an inflection point where further slowing in the labor market could lead to further increases in the unemployment rate. Of course, no one guarantees that the labor market will inevitably slow down."

She said, "So we must keep these two tasks in mind," referring to the Fed's mission to achieve full employment and price stability.

Fed officials have recently stated that they are increasingly confident that inflation is on the right track. Most Fed officials did not specify when they might lower borrowing costs from the 20-year high, but analysts and investors interpreted their words as a signal for action in September.

Daly cautioned people to be patient about the prospect of rate cuts, saying that Fed officials must "balance the cost of acting quickly and making mistakes," and it is important to avoid policy mistakes. This echoes Powell's testimony on Capitol Hill, where he told lawmakers that Fed policy has two risks, acting too early or acting too late. Powell previously stated, "We continue to make decisions incrementally. Easing policy too early or too much may harm progress on inflation."

The Fed's favored inflation gauge (PCE) has dropped to 2.6%, and the once overheated labor market has returned to pre-pandemic levels. While officials continue to describe the labor market as strong, they also indicate that with steady declines in job vacancies and gradual increases in the unemployment rate, the job market may be approaching a turning point.

Daly was also asked about last year's regional banking pressures and the collapse of Silicon Valley banks and other lending institutions. Daly said that the 12 regional Feds and the Fed Board in Washington are working to formalize measures aimed at conveying financial institution information to Board officials.

After last year's turmoil in the U.S. banking industry, Daly and other regulatory agencies have been closely watched