Fed voter Daly: We must protect economic growth and are open to only one more rate cut this year

Odaily News Mary Daly, a 2024 FOMC voter and president of the San Francisco Fed, said the Fed must remain vigilant as inflation falls and the labor market cools, even as she expressed optimism that officials can keep the current economic expansion going. "We've seen some of the same patterns play out in the current economic expansion," Daly said Tuesday at an event hosted by NYU Stern School of Business in New York. "The labor force participation rate for prime-age people has reached a new high. The current expansion is still relatively 'young' compared to recent history." Fed officials cut their benchmark interest rate by 50 basis points last month, a move policymakers said was aimed at protecting the labor market. Officials also expect the Fed to reduce borrowing costs by another 50 basis points through the rest of 2024, according to the median estimate released in September. Data released since the September meeting showed stronger-than-expected hiring last month and a larger-than-expected rise in underlying inflation, prompting several Fed officials to say they favor more gradual rate cuts going forward. Daly said Tuesday that the labor market is close to pre-pandemic levels and is no longer a source of major inflationary pressure. She also said the Fed's inflation and employment goals are now balanced, adding that officials must continue to work to protect the strength of the labor market and get inflation to the 2% target. "We have to be vigilant and intentional in constantly assessing the economy and balancing our two stated goals: achieving 2% inflation across the board while ensuring that the labor market is consistent with full employment," she said. Daly reiterated that last month's rate cut was a "recalibration" of policy as inflation cools, and stressed that interest rates remain restrictive. She said last week that she thinks the Fed may cut rates one or two more times this year, each by 25 basis points. After the speech, Daly reiterated her view in a discussion that the neutral rate - the rate that neither slows nor stimulates the economy - has likely risen. But she said current rates are still "a long way above" the neutral rate level. "People want to know, where is the rate going to be?" Daly said. "But the fact is, we are far from where it might be." She said 3% is probably a good guess. Daly said she would watch the data closely to decide how to lower borrowing costs as quickly as possible, and she reiterated that there could be one or two more rate cuts this year, but she was open to not cutting rates at one of the two remaining Fed policy meetings this year. Later, she told reporters that businesses have told the Fed that it is more difficult for them to raise prices to consumers because of slower spending growth. "The environment right now is not ideal for businesses to raise prices," Daly said. "They are looking for growth, but not for price increases." (Jinshi)