Fed's Daly
Fed's Daly

San Francisco Fed Pres. Mary Daly is speaking and says:

  • Monetary policy is restrictive.
  • Progress isn't victory, must remain resolute
  • To ensure we fully achieve goals, we need to finish the work.
  • We need vigilance and agility.
  • The economy still has considerable momentum.
  • We are a long way from 2% inflation and a long way from sustainable employment.
  • Even with recent slowing in the labor market, job growth remains well above what needed to keep pace with growth.
  • It's possible the slowing so far it will translate into steady march towards goal
  • There are real risks in inflation projection.
  • Will need to see progress on a super – core inflation to be confident we are on path to 2%.
  • If continue to see labor market and inflation calling we can hold rates steady
  • If financial conditions remain tight, that reduces need for more action from fed
  • But if calling inflation stalls or financial conditions loosen, will need to raise rates further
  • Need to keep an open mind, have optionality on rates
  • With rising bond yields, the need to do additional tightening by Fed is not there

HMMM... I think the last comment is key. Remember the Fed has earmarked one more hike between now and the end of the year.

Daly is not a voting member this year.

Looking at yields:

  • 2 year yield 5.02% -3 basis points
  • 5 year yield 4.678% -4.3 basis points
  • 10 year yield 4.712% -2.3 basis points
  • 30 year yield 4.876% -0.1 basis points
  • Dow Industrial Average is down -110 points.
  • The S&P is down -21 points and the
  • NASDAQ index down -72 points

More from Daly:

  • We could easily overcorrect – need to take time to do it right
  • I don't see dysfunction in the markets right now
  • Markets have a better sense now, I think about the Fed's reaction of function – that we want to get inflation down to 2%
  • We should not assume that we are now in a higher rate environment
  • There is a huge difference between renegotiating labor contracts and a wage-price spiral
  • We are not in a wage-price spiral
  • Short run inflation expectations have calmed down, and that releases wage pressure
  • I'm seeing a slowdown in hiring, but not a cliff
  • I don't see anything that's ringing an alarm bell about workforce
  • Going to start seeing more dispersion in the FOMC dot plot
  • If inflation comes down more than projected, Fed would need to calibrate policy
  • We are going to keep going until we are confident of inflation path to 2%
  • Market probabilities for Fed funds rate hike this year are not extraordinarily high, and that's consistent with how think about things