Daly sees “good reasons” to tighten monetary policy or pause

The president of the San Francisco Federal Reserve, Mary Daly, said Wednesday that while the strength of the US economy, the rigidity of the labor market and very high inflation suggest that there is “more work to be done” in terms of the Fed rate hikes, other factors, such as tightening credit conditions, could call for a pause.

“Looking ahead, there are good reasons to think that monetary policy may have to tighten further to reduce inflation.he said in prepared remarks for the Salt Lake Chamber in Salt Lake City, Utah.

“But there are also good reasons to think that the economy may continue to slow even without further policy tightening.”.

It’s the first time that Dali has been speaking since the failure of two banks last month shook confidence in the banking sector and raised the specter of tighter credit conditions that could quickly slow the economy.

Despite this risk, the Federal Reserve raised its reference interest rate by a quarter of a percentage point, to a range of 4.75%-5.00%, which bases its information on the risks of excessively high inflation that, according to the measure The Fed’s favorite, more than doubles the 2% target.

The Federal Reserve is expected to raise rates again at its next meeting on May 2-3, ending a hike campaign that began in March 2022, when rates were close to zero.

“Although the full impact of this monetary policy tightening is still working its way through the system, the strength of the economy and elevated inflation readings suggest there is more work to be done.Daly said.

“How much longer depends on various factors, all of which have considerable uncertainty associated with their evolution.”.

One of the two banks that failed last month, Silicon Valley Bank, did so after examiners from the regional bank of the fed of Dali they would have repeatedly warned about liquidity risk and bank management in confidential appointments with their board of directors and executives.

The Council of the fed in Washington oversees large regional banks such as SVB, and the vice president of the fed Michael Barr is conducting a review of what went wrong that will be published in May.

Dali He said that the banking system is solid and resilient, and that the actions of the fed show that “we are committed to ensuring that all deposits are secure”.

“We will continue to closely monitor the conditions of the banking system and we are prepared to use all our tools for institutions of any size, as necessary, to keep the system safe and robust.“, said.

Source: Reuters