MNI: Daly Touts Resilient Economy, Says Fed In No Rush To Ease

San Francisco Fed President Mary Daly on Friday said the U.S. economy remains in a good place and inflation is making ongoing progress toward the central bank's 2% inflation target, but the Fed doesn't need to be in a rush to adjust policy even as interest rates continue to put downward pressure on prices. 

"The U.S. economy has been extremely resilient and in my determination has been in a good place," she said in Q&A at the UC Berkeley’s Fisher Center for Real Estate & Urban Economics. "Retail spending numbers that came out, and they were still positive, although slower, they're heading down to a sustainable pace."

"People are still out there, which just tells me that the economy has good momentum," she said, calling monetary policy restrictive. "We have policy at a good place. We had lowered the policy rate by 100 basis points. It puts us in a good place in the economy, to just have more time to evaluate what the impacts are going to be over the longer term, and then make decisions as we need to. But we're in no rush to do so." She said uncertainty is the biggest concern among her business contacts and demand has been pulled forward but "not as much as you might think" and for the most part "we haven't heard a lot about layoffs." (See: MNI INTERVIEW: Inflation Uncertainty Deters Fed Easing -Evans)

"We have room to reduce" interest rates, she said. "I've been an advocate for this for a while. We need to be gradual in our actions," Daly said, pointing to the March SEP as a guide and emphasizing she'll be keeping an eye on incoming inflation readings. Daly said the pressures on the real interest rate has been upward -- in part because of increased debt supply -- and she is "very comfortable" in saying it is now around 1%, putting the nominal neutral rate at 3%. 

The Federal Reserve has "more room to run off" its balance sheet, as reserves in the financial system are abundant, she said. "We have a ways to go before we get to ample." She said recent bond market volatility would be expected given Washington's policy changes and there's been "nothing unusual" in global market flows given the trade negotiations. 

The labor market is solid and the unemployment rate has been near historic lows for "a while" and "people can find jobs who want them," she said. "Employers can find candidates when they need them."  

"Inflation has been coming down. It remains above our target but we are making gradual progress, ongoing progress," the San Francisco chief said. "When we talk to businesses, we're hearing that businesses are still penciling out and investing in good projects, and you see this in the investment numbers hasn't fallen off the cliff. People are still out there doing things. There's not a sense of, oh, we have to stop activity, but there's just uncertainty about how much we can engage in."