Fed voting member Daly: Economic growth must be protected, open to only one more rate cut this year

In 2024, Mary Daly, a voting member of the FOMC and President of the Federal Reserve Bank of San Francisco, stated that the Federal Reserve must remain vigilant as inflation rates decline and the labor market cools, despite her optimism that officials can sustain the current economic expansion.

Daly mentioned that, similar to past long periods of growth, a strong labor market has attracted more people to join the workforce, narrowing income gaps and benefiting workers significantly.

Speaking at an event held at New York University's Stern School of Business in New York on Tuesday, Daly said, "We have seen some of the same patterns reflected in the current economic expansion. The participation rate of prime-age workers has reached new highs. Compared to recent history, the current expansion is still relatively 'young.'"

Federal Reserve officials lowered the benchmark interest rate by 50 basis points last month, with policymakers stating that this move was aimed at protecting the labor market.

Based on the median estimate released in September, officials also expect the Federal Reserve to further reduce borrowing costs by 50 basis points for the remainder of 2024.

Data released since the September meeting showed that last month's hiring situation was stronger than expected, and the increase in core inflation exceeded expectations, prompting several Federal Reserve officials to indicate a preference for more gradual rate cuts in the future.

Daly stated on Tuesday that the labor market is approaching pre-COVID-19 levels and is no longer a major source of inflationary pressure.

She also mentioned that the Federal Reserve's inflation and employment goals are currently balanced, adding that officials must continue to work to protect the strength of the labor market and achieve the 2% inflation target.

She said, "We must remain vigilant, consciously evaluating the economy, balancing our two established goals: achieving 2% inflation comprehensively while ensuring that the labor market is consistent with full employment."

Daly reiterated that with inflation cooling, last month's rate cut was a "reset" of policy, emphasizing that rates still remain restrictive. She stated last week that she believes the Federal Reserve may cut rates one to two more times this year, each time by 25 basis points.

After her speech, Daly reiterated her view in a discussion that the neutral rate (a rate that neither slows down nor stimulates the economy) has likely risen. However, she mentioned that current rates are still "well above" the level of the neutral rate.

"People want to know, where will rates end up?" Daly said. "But the fact is, we are still far from where it might settle." She suggested that 3% could be a good guess.

Daly mentioned that she will closely monitor data to decide how to lower borrowing costs as soon as possible, reiterating that there may be one or two more rate cuts this year, but she remains open to not cutting rates at one of the remaining two Federal Reserve policy meetings this year.

Later, in an interview with reporters, she mentioned that businesses have informed the Federal Reserve that they are finding it harder to raise prices for consumers due to slowing expenditure growth Trudy Dai said, "The current environment is not suitable for companies to raise prices. They are seeking growth, but not seeking price increases."