(Bloomberg) — Three Federal Reserve interest-rate cuts is a “reasonable baseline” expectation for this year, San Francisco Fed President Mary Daly said.
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“I think that’s a reasonable baseline,” Daly said Friday while answering questions after a speech in Washington.
The San Francisco Fed chief, who votes on monetary policy this year, delivered a keynote address at a conference hosted by the National Association for Business Economics.
In her prepared remarks, she highlighted two opposing risks officials need to take account of in setting policy: Slower progress in bringing down inflation, on the one hand, and a sudden sharp deterioration in the labor market, on the other.
“To finish the job will take fortitude,” Daly said in the speech. “We will need to resist the temptation to act quickly when patience is needed and be prepared to respond agilely as the economy evolves.”
Fed Chair Jerome Powell and his colleagues have indicated the central bank is in no rush to lower interest rates, emphasizing the need to see further evidence that inflation is firmly on track to the Fed’s 2% target.
Data out this week has validated that view. The consumer price index rose by more than forecast in January across the board, and prices paid to US producers also climbed. As a result, some economists expect the Fed’s preferred gauge of underlying inflation to post the biggest increase since early last year.
“Price stability is within sight,” Daly said. “But there is more work to do.”
Daly discussed a variety of forces that might impede further progress in reducing inflation. Labor force growth and productivity may not continue to grow as strongly as they have, while consumer demand might fail to slow as expected, she said.
“Ongoing economic momentum that outstrips available supply remains a risk to the inflation outlook,” she said.
On the other side, there’s a danger the labor market could falter, she said.
“With employment growth as strong as it has been, this seems like a distant risk,” Daly said. “But given the speed at which labor market pivots historically occur, it’s a risk we must keep in mind.”
(Updates with additional Daly comments in first and second paragraphs.)
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