On Monday (August 26th) local time, San Francisco Federal Reserve Chairman Daly stated that it's time for the Fed to start cutting interest rates, and it's hard to imagine any unexpected situations at the September meeting.
Daley said in a media interview on Monday, "The time has come to adjust policies." She has the voting power on this year's monetary policy.
When asked if there were any factors that could hinder the Federal Reserve from cutting interest rates in September, Daley replied, "It's hard to imagine at the moment
She said that the most likely scenario in the future is that inflation will continue to slow down and the labor market will increase employment opportunities at a stable and sustainable pace. If this prediction is realized, it seems reasonable to adjust policies at a regular and normal pace.
Daley's position is consistent with that of Federal Reserve Chairman Powell. Powell stated at the Jackson Hole Global Central Bank Annual Meeting last week that he has increased confidence in inflation continuing to fall to the 2% target level, and it is now time to adjust policies.
The Federal Reserve has not adjusted interest rates since July last year, and the target range for the federal funds rate remains between 5.25% and 5.5%, the highest level in 23 years. The Federal Reserve will hold its interest rate meeting on September 17-18, and the market is confident that decision-makers will begin the long-awaited cycle of rate cuts, but opinions differ on the magnitude of the cuts.
Regarding the speed of future interest rate cuts, Daley said that it is still too early to determine the exact path of policy.
Daley stated that the Federal Reserve must lower inflation to 2%, but will also strive to prevent tightening policies from harming the labor market. We don't want to maintain highly restrictive policies during an economic slowdown, "she said.
She pointed out that as the inflation rate continues to decline, the current level of interest rates is putting increasing pressure on the economy, which will lead to excessive tightening and ultimately harm the labor market and economic growth.
Daley said that although the job market has not shown any signs of deterioration, policy makers need to closely monitor various indicators to ensure that recruitment does not stagnate. She emphasized that if there are truly signs of weakness, decision-makers should take more proactive measures.
The unemployment rate in the United States rose to 4.3% in July, the highest level in nearly three years, but still remains low by historical standards. At the same time, the year-on-year growth rate of CPI in the United States slowed down to 2.9% in July, hitting the lowest level in over three years.
Daley said she doesn't want to claim that the Federal Reserve is on the path to neutral interest rates because the economic outlook remains highly uncertain.
According to her estimation, the inflation adjusted neutral interest rate may reach 1%, so even if the Federal Reserve starts cutting interest rates, it will still be in a restricted range for a period of time.