(Reuters) – Despite “remarkable” progress on U.S. inflation, Federal Reserve Bank of San Francisco President Mary Daly said on Friday “there is more work to do” to ensure stable prices – a phrase that signals she feels it’s not yet time for interest-rate cuts.
“We will need to resist the temptation to act quickly when patience is needed and be prepared to respond agilely as the economy evolves,” Daly said in remarks prepared for delivery to the National Association for Business Economics.
Inflation declined rapidly last year, from 5.5% in January to 2.6% in December by the Fed’s targeted measure of the personal consumption expenditures price index. Unemployment, meanwhile, was 3.7% last month, up just three tenths of a percentage point from the start of the year.
The combination, Daly said, is “unequivocally good news,” but it is unclear whether that will continue. Risks for this year include the potential that inflation’s progress slows, or that the labor market falters, she said.
And while projections embedded in financial market pricing and reflected in surveys suggest inflation is on track to the Fed’s 2% target, she said, “we need more time and data to be sure that they will be realized.”
Data Friday showing underlying wholesale prices surged last month appeared to reinforce that view, though Daly did not cite it specifically.
Financial markets are pricing in about four quarter-point interest-rate cuts this year, starting in June, that will bring the Fed’s policy rate to the 4.25%-4.5% range by year end. Fed policymakers in December largely felt three rate cuts would be appropriate, though they will update those forecasts at their meeting next month.
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