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Daly: A Lot Of Factors Pulling Back The Reins On Economy

FED
  • Daly (’24 voter) opts for a strong data dependency angle and doesn’t want to pre-empt upcoming FOMC decisions, with the data dependency limiting further increases in Fed implied rates after reasonable increases on the day.
  • Credit tightening impact: “Very challenging question to answer. We have to be Bayesian with a prior and then constantly update the prior as we get more information. My prior is that it could worth as much as a couple of rate hikes. I want to be mindful of that considering the broad range of estimates. Continuing to watch if that’s really true and whether it’s sufficient to bring demand back in line with supply.”
  • Relatively dovish compared to some on the FOMC on policy lag timings: “"Financial conditions tightened initially with almost zero lag but it has taken longer than expected to feed through to the real economy. I’m not sure we find out after we study this period whether the lags are 18 or 24 months, but my guess is that it’s a little shorter than we’ve historically had. But the fact we haven’t seen the build up of slowing pressures doesn’t mean it won’t show up, but rather that the time is getting nearer and we have to be extremely mindful. Adding the credit tightening, there are a lot of factors pulling back the reins on the economy. That's why we need to be so critically data dependent to prevent the risk of overtightening."
  • However, *DALY: GLOBAL TIGHTENING HASN'T SLOWED GROWTH AS MUCH AS FEARED - bbg
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