Fed's Daly Expresses Growing Confidence in Achieving 2% Inflation Target

Fed’s inflation war:  San Francisco Federal Reserve Bank President Mary Daly expressed increasing confidence on Monday that inflation is moving towards the US central bank's 2 per cent target, a crucial benchmark for considering future interest rate cuts.

Speaking at a tech-focused conference organized by Fortune in Park City, Utah, Daly highlighted the progress being made in controlling inflation. “Confidence is growing that we are getting nearer a sustainable pace of getting inflation back down to 2 per cent,” she said, underscoring the central bank's goal to stabilize prices.

Daly explained that as inflation decreases and the labor market slows, the Federal Reserve must carefully manage interest rates to avoid jeopardizing economic stability. "Over time, as inflation comes down and the labor market slows, we have to ensure that we're holding rates high enough to maintain the fight against inflation, but not for so long that it significantly harms the labor market and makes it difficult for people to find jobs," she elaborated.

The Fed has been raising interest rates to combat high inflation, aiming to bring it down to their target of 2 per cent. This involves a delicate balance: raising rates too high or too long can lead to increased unemployment and slow economic growth, while not raising them enough can allow inflation to persist.

Daly's comments reflect a growing optimism among policymakers that the measures taken are working, and the economy is moving toward a more stable and predictable inflation rate. However, she emphasised the need for caution in adjusting rates to avoid negatively impacting the labor market.

With Reuters Inputs