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Mary Daly, President of the Federal Reserve Bank of San Francisco, poses after a speech on the US economic outlook, in Idaho Falls, Idaho, November 12, 2018.
Ann Saphir | Reuters
Tighter monetary policy will help reduce the pace of inflation, but not to a level where policymakers should feel too comfortable, Mary Daly, president of the San Francisco Federal Reserve, said Friday.
“The news on inflation has been quite good, and we shouldn’t ignore that,” the central bank official said during an interview on CNBC’s “The Exchange.” “Having said all this, it is far too early to declare victory.”
The comments come a day after Fed Chairman Jerome Powell startled financial markets when he said he and his fellow officials are “not confident” that policy has reached a point where it is tight enough to bring inflation back down. to achieve the 2% target.
Daly likened the Fed’s task to get policy “sufficiently restrictive” to someone riding a horse trying to know whether the bridle has been pulled back far enough to stop.
“You don’t know if the horse will feel the bridle enough to be restrictive enough to stop,” she said. “Like the horse, we are now in a position where we know we are being significantly restrictive. But to really make sure that we have enough restrictions in the economy to reduce inflation, we’re going to have to watch the data and see if the economy slows down.”
For the second meeting in a row, the Federal Open Market Committee decided last week to leave rates unchanged, with the Fed targeting a range between 5.25% and 5.5%, the highest in 22 years.
Daly, who will be an FOMC elector in 2024, did not commit to a position on the future of rates, but instead said the Fed is in a place where it can evaluate the incoming data and act accordingly.
“We are going to be very forward-looking here, and that is why it is too early to declare victory. But I don’t want to rule out that we are in a good place because we can move easily and flexibly depending on what the data shows,” she says.
