Fed’s Daly says the economy is strong, but it’s ‘way too early’ to tighten policy

While encouraged by economic progress, Mary Daly, president of the San Francisco Federal Reserve, told CNBC on Tuesday that it is still not time to change policy.

“We haven’t seen any significant further progress. We are still looking for significant further progress,” Daly said during a live interview with Closing Bell. “What we’ve seen is some really bright spots, some very encouraging news. It gives me hope and I’m optimistic about the future. But it’s too early to say the job is done.”

Fed officials have used “significant further advances” as a gauge of when they will consider slowing down the pace of their monthly asset purchases first and ultimately raising interest rates.

Several central bank officials announced last week that it will soon be time to discuss a reduction in the bonds the Fed is buying for at least $ 120 billion each month. Minutes of last month’s Federal Open Market Committee meeting also reflected the assessment that rejuvenation discussions could take place in the months ahead.

But Daly said the public shouldn’t take this as a sign that the Fed is ready to tighten policy.

“We’re talking about rejuvenation, and that’s what you want from us. You want to be seen here for a long time,” she said. “But I want to make sure everyone knows it’s not about doing something new. Right now politics is in a very good place. Politics supports the American people.”

Fears of inflation have fueled the discussion about the Fed withdrawing some of its historically simple monetary policy. The consumer price index rose 4.2% in April, while prices for a wide variety of items, from used cars to gasoline to airline tickets, also rose sharply.

Daly described himself as “stuck in transit” when it comes to inflation.

Along with almost all Fed colleagues, she sees the current price pressures as a result of temporary supply shortages that will lessen as demand normalizes again, as well as base effects of comparisons with the state of the economy a year ago during the pandemic economic shutdown.

She also sees “considerable momentum” in the economy, but believes that 8 million people are still unemployed and the pandemic continues to be a problem. Now is not the time for the Fed to pull out.

“What is important is that some of the boom we are seeing is aided by the precautions we have taken to ensure the bridge is long enough for every American to get over Covid and fully tune in again,” said you. “I think that’s really good news, but it’s way too early to declare victory.”

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