Fed's Daly Warns of Inflation Persistence, Labor Market Risks

Federal Reserve Bank of San Francisco President Mary Daly reiterated concerns regarding the persistence of inflation and potential risks to the labor market, even as recent economic data suggest some moderation. Speaking at an event, Daly emphasized that while the economy has made progress in disinflation, the job is not yet complete. She highlighted the ongoing strength in the labor market, noting that despite some cooling, demand for workers remains robust. However, she cautioned that a prolonged period of elevated inflation could eventually undermine labor market stability. Daly indicated that future monetary policy decisions would remain data-dependent, with a particular focus on inflation trends and labor market indicators. She acknowledged the lag effects of past interest rate hikes and stressed the importance of allowing these effects to fully materialize before making further adjustments. The San Francisco Fed chief also touched upon the challenge of navigating a soft landing, where inflation is brought down without triggering a significant economic downturn or substantial job losses. Her remarks align with the broader sentiment among Fed officials that while the peak of inflation may be behind us, vigilance is required to ensure price stability is fully restored. The commentary reinforces expectations for the Fed to maintain a restrictive policy stance for longer, potentially extending the period before any rate cuts are considered.