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

Mary Daly, president of the San Francisco Fed and a 2024 FOMC voter, 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 expansion. 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," Daly said Tuesday at an event hosted by NYU Stern School of Business in New York. Federal Reserve 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 must remain 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, by 25 basis points each. 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. "People want to know, where will interest rates go?" Daly said. "But the fact is, we're still a long way from where it might end up." She said 3% might be a good guess. Daly said she would keep a close eye on the data 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 companies told the Fed that it was harder for them to raise prices to consumers because of slower spending growth. "The environment right now is not for companies to raise prices," Daly said. "They're looking for growth, but not for price increases." (Jin Shi)