San Francisco Fed President Mary Daly, known for her hawkish stance this year, suggested on Friday, October 6, 2023, that if the job market slows, inflation hovers around 4%, and financial conditions remain tight, additional Federal Reserve interventions might not be necessary. Her views align with Wall Street's 80% forecast of rates holding at a 5.5%-5.75% range.
Daly examined the impact of the 10-year Treasury note yield's peak at 4.8%, a level not seen in 16 years. She proposed that sustained tight financial conditions could lessen the need for further Fed action, suggesting that financial markets have played their part.
The Fed president noted a dip in market expectations for another rate hike come November, interpreting this as markets understanding the Fed's thought process and 'reaction function'. Daly underscored the importance of monitoring economic indicators such as a cooling labor market and inflation gravitating towards target to justify steadiness in interest rates.
Emphasizing "optionality," Daly clarified that keeping rates steady is an active policy action, particularly as declining inflation magnifies existing policy measures' impact. She highlighted the Fed's adaptability, implying that if economic indicators don't decelerate as anticipated or financial conditions overly relax, the Fed is prepared to raise rates until monetary policy achieves its desired restrictiveness.
On Thursday, October 5, 2023, during her speech at the Economic Club of New York, Daly referenced significant market shifts including a surge in 10-year Treasury yields and an aggressive campaign resulting in 11 rate hikes since March 2022. She indicated that if bond yields hold steady, further rate hikes could be unnecessary.
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