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Fed’s Daly: ‘We Won’t Spanking’


San Francisco Fed President Mary Daly said: The Federal Reserve has made a “big change” and adopting a policy framework means that the current group of policymakers will not escape the stance. Its easy policy as to what may have happened in the past. .

In the past, Fed officials often joked that their job in the economy was to win alcohol so that the party would not overdo it. Daly said this no longer happened during a webinar sponsored by Northeastern University.

“We’re not going to preemptively bring punches out of the economy … in an effort not to let unemployment get too low,” Daly said.

“We want to discipline ourselves here and not overjoyed that the unemployment rate is falling, while so many other measures of labor market activity are still below pre-pandemic levels,” Daly said. need to recover, ”Daly said.

“So what you’ll see in our framework is a good, healthy thing and I think it’s the right dose of patience,” she added.

It also means “don’t react to fears about things happening,” which will drive inflation higher, San Francisco Fed chairman, who is a voting member of this year’s FOMC, said.

In a discussion with reporters after her webinar, Daly declined to reveal where her “dot” is on the Fed’s latest “dot chart” on the expected route. of interest. Some of her colleagues discussed their dots this week.

Read: The Fed’s Kaplan said he will see the first rate hike next year

Daly said she doesn’t want to focus on any date on the calendar but instead on the economic condition needed before she supports the rate hike.

Her conditions include: eliminating underemployment caused by the pandemic, estimated at 9 million people; inflation increased by 2% “on a maintained basis;” and forecast inflation will increase moderately over 2%.

Many economists fear the Fed’s new policy framework could lead to persistently higher inflation and the Fed will have to quickly reverse course and tighten policy to counter it.

Daly said economists worried about a return to high inflation – which last appeared in the late 1970s and early 1980s – “put too little weight into the decades that followed in the 1970s. “.

Economic conditions for that decade “were not our reality for a long time,” she added.

On the other hand, Daly said she saw no signs of concern about asset bubbles. “I see bags of interest – foam bags. It’s not a common indicator that financial conditions are generally not good, I just don’t see that. “

In the latest economic forecast released last week, the Fed expected that it would keep interest rates close to zero until at least the end of 2023. But many economists think the Fed could move in. the end of 2022.

Stocks closed lower on Wednesday
DJIA,
-0.01%

SPX,
-0.55%

COMP,
-2.01%

as investors worry about the potential for higher long-term Treasury yields.

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