Mary Daly Of Federal Reserve Pitches Gradual Interest Rate Cuts, Citing Inflation Confidence: 'We Are On Our Way To Price Stability'

Mary Daly, the President of the San Francisco Federal Reserve, expressed her support for a cautious approach to interest rate cuts, in a recent interview. This comes amid mounting confidence in inflation control.

What Happened: Daly, a voting member of the Federal Open Market Committee, has suggested that the U.S. economy is not yet in a position to warrant rapid interest rate cuts. She emphasized the need for a gradual approach to adjusting borrowing costs, reported the Financial Times on Sunday.

She stated that it’s time to consider adjusting borrowing costs from their current range of 5.25% to 5.5%, according to the report.

Her comments come ahead of the annual Jackson Hole meeting in Wyoming, where global central bankers will convene to discuss the future of monetary policy.

Despite concerns about a potential economic slowdown, Daly emphasized that the U.S. economy is not in a dire situation and advocated for a “prudent” approach to rate cuts. She stated, “Gradualism is not weak, it's not slow, it's not behind, it's just prudent.”

Daly’s stance counters concerns about a potential recession in the U.S. economy, as well as the speed at which the U.S. rates will ease from their 23-year high.

The President of the San Francisco Fed downplayed the urgency for a dramatic response to signs of a weakening labor market, asserting that the U.S. economy is not showing significant evidence of heading for a deep downturn.

"After the first quarter of this year, inflation has just been making gradual progress towards 2%," said Daly. "We are not there yet, but it's clearly giving me more confidence that we are on our way to price stability."

Investors are anticipating a rate cut at the next Fed meeting, with markets pricing in a 70% chance of a quarter-point cut. This would mark the first drop in interest rates in four years.

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Why It Matters: The Federal Reserve’s approach to interest rate cuts has been a topic of intense debate in recent weeks, with conflicting economic data leading to volatile swings in interest rate expectations.

At the beginning of August, a 50-basis-point rate cut in September seemed likely, but these expectations have since shifted, with markets now pricing in a higher likelihood of a more modest 25-basis-point cut.

Economist Claudia Sahm, creator of the Sahm Rule, has also been at the center of the debate, defending the rule’s relevance amid growing criticism and skepticism, including from Federal Reserve Chair Jerome Powell.

Renowned economist Peter Schiff has also weighed in, slamming the July Consumer Price Index as a “fraud” and questioning the accuracy of the CPI.

The July consumer inflation data released suggests the Federal Reserve may not cut rates as deeply as expected in September, with markets now more concerned about economic growth than inflation.

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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote