O Federal Reserve need to slow down economy From United States and loosen the tight labor market to reduce inflation corrosively high, San Francisco Fed chief Mary Daly said on Thursday, but it doesn’t have to trigger a recession to do so.
“Navigating the economy onto a more sustainable path requires higher interest rates and a slowdown in economic activity and the job market,” Daly said in remarks prepared for Boise State University in Idaho.
That view was also expressed last week by the Fed Chair, Jerome Powell, and several central bank monetary policymakers since then. “But for now, inducing a deep recession does not seem justified by the conditions, nor is it necessary to achieve our goals.”
That’s because, she said, households and businesses have so far not built expectations of higher and higher prices into their rationale, unlike 40 years ago, when inflation soared for a decade before the Fed took decisive action.
Still, Daly said, the Fed cannot take well-anchored inflation expectations for granted, warning that the longer the rise in prices remains high, the more likely it is to undermine Americans’ confidence in the central bank’s ability to bring down -there.
That could force the Fed to take the kind of dramatic action it did in the 1980s like raising the base rate to double digits and plunging the economy into a freefall.
The risks against a soft landing for the economy are “uncountable,” Daly said, and include ongoing battles against Covid, the war on Ukrainea recession ahead for Europe and monetary tightening by global central banks.
These risks, along with lingering supply chain issues, “robust” consumer spending, and a strong labor market marred by low unemployment of 3.7%, “narrow the way to a soft landing,” she said, “ But they don’t close it.”
The Fed, she said, will need to pay close attention to economic data so it doesn’t go too far or too far. “History tells us that the costs of mistakes are high,” she said.
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Source: Moneytimes
I am a journalist with over 6 years of experience working in the news industry. I currently work as an author for Global Happenings, and my coverage focuses on Technology news. I have written for various publications, including Reuters, The New York Times and The Guardian.
