October 15, 2024 16:04 GMT
FED: Daly: A Long Way From Where Rates Likely To Settle
FED
USGlobalEM BulletFederal ReserveCentral Bank NewsFixed Income BulletsBulletMarketsEmerging Market NewsForeign Exchange BulletsRegionNorth America
Highlights from Daly's ('24 voter) Q&A:
- Q: Can you quantify how much more optimistic you are than 6-9 months ago and why?
- Daly (’24): I’m cautiously optimistic, from a whole list of things. We have been able to get inflation down without a major disruption in the labor market. The fact that inflation has started to come down in all the categories that we look at: shelter, core services outside of housing and goods. We expected goods to come down as supply chains improved but I was less certain about core service ex-housing. The other factor is firms and workers are still in the game. What I’m hearing more and more and more from firms is that their ability to pass on price increases is limited.
- Daly: We’re a long way from where rates are likely to settle. The decisions are how quickly to adjust towards that level. It’s quite possible that we have a slightly higher neutral rate of interest than we came in with. If you thought the real neutral was 0.5% or nominal 2.5%, 3% nominal now is a completely reasonable way to believe. I don’t know if it’s higher than that or would return back to a real 0.5%. Largely deciding what the benchmark is gives you some help but it doesn’t tell you what to do.
- If we get a lot more traction on the rate declines that we think we’re going to get then it means we’re closer to natural rate and vice versa. Humility is a very good characteristic to have when talking about neutral rates.
Keep reading...Show less
261 words