Fed Resolute in Pursuit of Soft Landing, Daly Affirms

San Francisco Federal Reserve Bank president Mary Daly emphasized the central bank's unwavering commitment to achieving a soft landing for the economy, underscoring the crucial role of interest rate adjustments in supporting the Fed's dual mandate of price stability and maximum employment.

Navigating the Delicate Balance of Economic Growth and Inflation Control

Resolute Approach to Soft Landing

Mary Daly, the president of the San Francisco Federal Reserve Bank, has reiterated the central bank's determination to achieve a soft landing for the economy. In a speech delivered in New York, Daly stated that the "work to achieve a soft landing is not fully done," but the Fed remains "resolute to finish that job." This resolute stance reflects the Fed's commitment to carefully calibrating interest rates to match the economic conditions, a crucial step in preventing the mistake of over-tightening and ensuring the support of both the Fed's price stability and maximum employment goals.

Adjusting Interest Rates: A Delicate Balancing Act

Daly emphasized the importance of adjusting interest rates to match the economy, noting that this "prevents the mistake of over-tightening and ensures we are supporting both of our goals." The central bank's dual mandate, which includes maintaining price stability and achieving maximum employment, requires a nuanced approach to monetary policy. By carefully adjusting interest rates, the Fed aims to strike a balance between controlling inflation and fostering a robust labor market, ultimately guiding the economy towards a soft landing.

Normalizing the Labor Market

Addressing concerns about the strength of the labor market, Daly stated that most measures of the job market are now at or near their pre-pandemic values, and the unemployment rate is hovering around a level she considers sustainable over the long run. This assessment suggests that the labor market has largely normalized and is no longer a significant source of inflationary pressures, providing the Fed with more flexibility in its policy decisions.

Navigating Inflation Dynamics

Despite the Fed's recent interest rate cuts, Daly acknowledged that policy remains "restrictive," acting to push down inflation towards the central bank's 2% goal. However, the latest reading on inflation showed prices warming up in September, as measured by the Consumer Price Index. This development has caused some on Wall Street to question whether inflation is heating back up and whether the Fed could slow or pause its new rate-cutting cycle.

Resolute Commitment to Mandates

Daly's comments echo the sentiments expressed by Fed Chair Jay Powell, who recently stated that the Fed "intends to use its tools to keep the economy in solid shape" and remains "resolute in its commitment to its maximum-employment and price-stability mandates." This unified message from the central bank's leadership underscores the Fed's determination to navigate the delicate balance between economic growth and inflation control, with the ultimate goal of achieving a soft landing for the economy.