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(Bloomberg) — Federal Reserve Bank of San Francisco President Mary Daly said central bankers can keep interest rates steady if the labor market and inflation continue to cool or financial conditions remain tight.
“If we continue to see a cooling in the labor market and inflation heading toward our goal, we can keep interest rates stable and let the effects of monetary policy continue to work,” Daly said Thursday in remarks prepared for an event organized by The Economic Club of New York.
“Importantly, even if we keep rates where they are today, monetary policy will become increasingly tighter as inflation and inflation expectations fall,” Daly said. “Therefore, keeping rates stable is an active monetary policy action.”
“Likewise, if financial conditions, which have tightened considerably over the past 90 days, remain restrictive, the need for us to take further action is reduced,” he added.
However, Daly said that if improving trends plateau “we can react to that data and raise rates further until we are confident that monetary policy is tight enough to complete the job.”
Daly said he sees the recent tightening in the bond market as roughly equivalent to a rate hike and a sign that financial markets are trying to “find their footing.”
Daly suggested that if bond yields remain high, the Federal Reserve can keep its benchmark interest rate stable.
Federal Reserve bankers are trying to decide whether they need to raise their benchmark interest rate again after raising it by more than five percentage points over the past 19 months. They left the rate unchanged at their September policy meeting, although 12 of the central bank’s 19 committee members signaled they would support another rate hike this year, according to projections released at the meeting.
Daly, who does not have a vote on monetary policy decisions this year, said on September 22 that central bankers are committed to achieving their 2% inflation target and will do so “as smoothly as possible.”
Translated by Paulina Steffens.
Original Note: Daly Says Fed Can Hold Rates Steady If Labor, Prices Cool More
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