San Francisco Fed President Daly Cautions Against Premature Rate Cuts

Mary Daly, the President of the San Francisco Federal Reserve, has underscored the importance of exercising caution in the Federal Reserve’s interest rate decisions. She emphasized that while the Federal Open Market Committee (FOMC) cannot indefinitely delay rate cuts, it must also avoid premature actions that could destabilize the economy. Daly noted that the FOMC still has "some work to do" before considering rate cuts, indicating a measured approach to monetary policy.

Daly's remarks come at a time when there is significant political pressure and economic uncertainties, including concerns about inflation and tariffs. Despite calls for immediate rate cuts, Daly has resisted, stating that the Fed must ensure inflation is under control before making any significant changes. She acknowledged that the time to begin lowering interest rates is approaching but cautioned against hasty decisions. Daly suggested that two rate cuts may be appropriate this year, but this would depend on various economic indicators, including labor market conditions and inflation trends.

Daly's comments align with the FOMC's decision to maintain the Fed funds interest rate within the range of 5.25% during its January 2024 meeting. This decision reflects the committee's commitment to a go-slow approach, prioritizing economic stability over immediate political gains. By emphasizing the need for a thorough assessment of economic data before making any rate adjustments, Daly aims to ensure that any rate cuts are justified by economic fundamentals rather than external influences. This approach is crucial for maintaining the Fed's credibility and ensuring that its policies are effective in promoting sustainable economic growth.

Daly's statements indicate that the Fed’s decision-making processes will be grounded in economic data and insulated from political influences. In this framework, close attention is given to whether market expectations align with macroeconomic indicators. Efforts to maintain the Fed’s independence are upheld while prioritizing transparency and stability in economic decisions. Daly's remarks point to a cautious evaluation of immediate interest rate cut expectations, emphasizing that the Fed is committed to making determinations based on economic indicators and macroeconomic variables, rather than solely relying on expectations.