San Francisco Federal Reserve President Mary Daly stated on Thursday that the Fed needs to cut the policy rate due to falling inflation and a slowing economy.
Key Points from Daly’s Comments
Uncertainty on size of September Fed rate cut.
More data needed, including Friday’s job market report and CPI.
Fed must adjust policy to match evolving economy.
Labor market has softened but remains healthy.
Concerns about potential labor market slowing with overly tight policy.
Price stability not yet restored, inflation remains a top concern.
Businesses cautious on hiring, but layoffs not imminent.
Economy at an inflection point, data expected to be volatile.
Fed prepared to act aggressively when outlook is clear.
Market Response
Following Daly’s comments, the US Dollar has faced renewed selling pressure against major currencies, with the US Dollar Index (DXY) down 0.08% to trade near 101.30.
Federal Reserve FAQs
Monetary policy in the US is influenced by the Federal Reserve (Fed), which aims to achieve price stability and full employment by adjusting interest rates. The Fed holds eight policy meetings a year to assess economic conditions and make monetary policy decisions.
In extreme situations, the Fed may use Quantitative Easing (QE) to increase credit flow in the financial system. QE involves buying bonds to stimulate the economy. Quantitative tightening (QT) is the opposite process, where the Fed reduces bond purchases to strengthen the US Dollar.
Analysis
Daly’s call for a rate cut reflects concerns about the slowing economy and falling inflation. If the Fed follows through with a rate cut, it could impact borrowing costs, the US Dollar’s value, and overall economic growth. Investors should monitor upcoming economic data and Fed decisions for potential market shifts.