Federal Reserve Bank Insights

By Michael S. Derby

NEW YORK (Reuters) – Federal Reserve Bank of San Francisco President Mary Daly stated that the central bank is on track for more rate cuts this year, provided that economic data aligns with expectations. Despite last month’s rate cut, she emphasized that monetary policy continues to combat inflation pressures.

Daly referred to the half percentage point cut in the federal funds rate as a “right-sizing” of monetary policy, acknowledging progress while maintaining a restrictive stance. She assured that even with adjustments, the policy remains focused on achieving a 2% inflation target.

As a voting member of the Federal Open Market Committee, Daly indicated that if inflation decreases as expected, “one or two rate cuts this year would be reasonable.” However, she stressed that we are still far from determining the final outcomes of the Fed's rate-cutting strategy.

Daly noted the necessity of being vigilant and intentional in managing inflation in a full-employment job market while refraining from providing specifics on the rate-cutting timeline.

The Fed recently lowered its target rate to between 4.75% and 5%, predicting approximately 50 basis points of additional cuts by year-end amid easing inflation pressures and an improving job market. Yet, robust hiring data for September raised questions about the size and pace of future cuts.

In terms of quantitative tightening (QT), Daly saw no immediate need to halt the Fed’s bond-shedding process, which has decreased holdings from a peak of $9 trillion to $7.1 trillion.

Concluding, Daly remarked that with inflation pressures lessened and a more balanced risk environment, the economy shows improvement—evidenced by an unemployment rate hovering around the long-run average and a job market that is stabilizing and no longer a significant inflation threat.