Fed’s Daly backs rate hold, warns of aggressive action if inflation rebounds
Mary Daly supports July decision to keep rates at 3.5%-3.75% but cautions that the Federal Reserve must be prepared to act swiftly if price pressures reaccelerate.
Federal Reserve Bank of San Francisco President Mary Daly has publicly endorsed the central bank’s decision to maintain interest rates at a target range of 3.5% to 3.75% during its July policy meeting. Speaking at an economics conference in Tokyo on Wednesday, Daly stated she was “completely supportive” of the pause, emphasising that the Federal Open Market Committee (FOMC) requires further data before its next gathering in September to assess the trajectory of inflation.
Daly highlighted the uncertainty surrounding current price pressures, noting that the central bank must determine whether inflation is being driven by temporary supply shocks or if it is becoming entrenched. She argued that businesses currently possess limited pricing power and may struggle to pass on higher input costs to consumers, suggesting that some supply-driven shocks may not have a lasting impact on the broader economy.
The Fed’s decision to hold rates steady followed a month in which the US economy unexpectedly contracted, shedding 23,000 jobs. This labour market cooling has unsettled financial markets and complicated the central bank’s dual mandate of curbing inflation, which remains above its 2% target, while supporting economic growth. Three FOMC officials dissented from the consensus, voting in favour of raising rates due to persistently high inflation levels.
While Daly is not currently a voting member of the FOMC, she warned that the central bank must remain vigilant. She cautioned that if inflation momentum rebuilds, the Fed may need to respond aggressively to bring price pressures back to target. Daly noted that public perception is also a factor, stating she is concerned about how households might react to another chapter of renewed inflation.
Geopolitical tensions in the Middle East have contributed to a sharp increase in oil prices, affecting the supply outlook for energy firms and consumer expectations. Daly observed that consumers are particularly focused on energy costs, suggesting that a resolution to the conflict could help reduce inflationary pressure from this sector. The Fed will now await incoming economic indicators to guide its next policy move.
