SF Fed's Daly: Inflation Doesn't Inspire Confidence, But Eyeing Jobs Weakness

SF Fed Pres Daly notes in a speech today that "the bumpiness of inflation data so far this year has not inspired confidence", and while "recent readings are more encouraging...it is hard to know if we are truly on track to sustainable price stability."

• Echoing Chair Powell and others, Daly notes it would be appropriate to lower the policy rate if the labor market weakens more than expected: "If instead, inflation falls rapidly, or the labor market softens more than expected, then lowering the policy rate would be necessary. Finally, if we continue to see gradual declines in inflation and a slow rebalancing in the labor market, then we can normalize policy over time, as many expect."
• "If inflation turns out to fall more slowly than projected, then holding the federal funds rate higher for longer would be appropriate," she said.
• While she gives little away here on her personal rate cut outlook, her emphasis on the potential for cuts on the back of an unexpected deterioration in the labor market puts her somewhere on the neutral-to-dovish area of the 2024 Dot Plot, possibly one of the 8 (of 19) participants who saw 2 cuts by year-end, as opposed to the median 1 cut.