Fed’s Daly: ‘Premature’ to think rate cuts are around the corner

(Reuters) – San Francisco Federal Reserve Bank President Mary Daly on Friday said she feels there is “a lot of work left to do” on bringing inflation back down to the Fed’s 2% goal, and that it is “premature” to think interest-rate cuts are around the corner.

Daly, in an interview with Fox Business Network, said she needs more evidence that inflation is falling to feel confident enough to adjust monetary policy.

“We are fully committed to restoring price stability and doing it of course as gently as we can, but we have a lot of work left to do: we are not there yet and it’s far too early to declare victory,” Daly told FBN. “So while I think it’s appropriate for us to look forward and ask when would policy adjustments be necessary so we don’t put a stranglehold on the economy, it’s really premature to think that that’s around the corner.”

Fed policymakers will meet to discuss policy in a week and a half. While they are widely expected to leave the policy rate in its current 5.25%-5.5% range, financial market bets had until quite recently been very confident that the Fed would start cutting rates in March, given the faster-than-expected decline in inflation in the second half of last year.

Daly’s remarks pushed back on those expectations, which had already been eroding for much of this week amid stronger-than-expected retail sales and other signs of continued strength in consumer spending. Other Fed policymakers have also made remarks suggesting that rate cuts are not likely until data shows inflation falling further.

“We need to see more evidence that it is heading back down to 2% consistently and sustainably for me to feel confident enough to start adjusting the policy rate,” Daly said. Early signs that the labor market is starting not just to cool but to falter could also push her to consider rate cuts, she said.

“Neither one of those right now is pushing me to think that an adjustment is necessary, but we definitely want to keep our eyes on those things,” she said.

(Reporting by Ann Saphir in Berkeley, California; Editing by Leslie Adler and Matthew Lewis)