Fed's Daly Warns of Prolonged High Rates, Calls for Open-Minded Rate Cut Discussion

Federal Reserve Bank of San Francisco President Mary Daly expressed concerns about the potential for prolonged high interest rates, urging policymakers to maintain an "open mind" in discussions about further rate cuts. Daly made her comments on Monday during an appearance on Bloomberg TV, where she emphasized the need to carefully consider the economic data in order to make informed decisions. According to Daly, the US economy is likely experiencing a downturn in demand, while inflation related to tariffs appears to be contained for the time being. "If you unpack the data, what you see is, you don't see inflation running up in services or housing, and importantly, you don't see it spreading into inflation expectations," Daly said. She noted that this is a crucial distinction, as it suggests that the current inflationary pressures are largely isolated and not indicative of a broader economic trend. Daly's comments come as the Federal Reserve continues to grapple with the challenges of managing inflation and promoting economic growth. The central bank has raised interest rates several times in recent months in an effort to combat rising prices, but some economists have argued that these increases may have gone too far and are now constraining economic activity. Daly's remarks suggest that she is among those who believe that the Fed should be cautious in its approach and avoid keeping interest rates too high for too long. In her discussion on Bloomberg TV, Daly also highlighted the importance of considering the potential impact of interest rates on different segments of the economy. She noted that while high interest rates may be necessary to combat inflation, they can also have negative effects on certain industries and individuals, such as those who rely on borrowing to finance their businesses or homes. The Federal Reserve's decision-making process is typically influenced by a range of factors, including economic data, inflation rates, and labor market conditions. Daly's comments suggest that she believes the current economic data warrants a more nuanced approach, one that takes into account the potential risks and benefits of further rate cuts. As the Fed continues to navigate the complex challenges of monetary policy, Daly's remarks are likely to be closely watched by economists and policymakers alike. In the coming weeks and months, the Federal Reserve is expected to continue to monitor the economy and make adjustments to its monetary policy as necessary. Daly's comments suggest that she will be among those advocating for a more cautious approach, one that prioritizes economic growth and stability over the need to combat inflation at all costs.