Fed’s Daly Supported Rate Decision, Warns of Inflation Risks

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Or sign-in if you have an account.(Bloomberg) — Federal Reserve Bank of San Francisco President Mary Daly said she supported the central bank’s decision to keep interest rates on hold last week, but warned of the possibility that high inflation is a broader problem that could require more aggressive action from policymakers. 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If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againFed officials voted last week to keep interest rates unchanged, though three policymakers dissented because they wanted to raise rates by a quarter percentage point. Daly is not a voter on the rate-setting Federal Open Market Committee this year, though she participates in the policy deliberations. Fed officials have been divided over the risks from inflation pressures, and how to deal with them. Some, like Daly, still see the shocks from tariffs, the oil-price surge and the artificial intelligence boom as likely to be isolated and eventually dissipate. Others see evidence that inflation in those areas has already broadened to other parts of the economy. In her remarks, Daly outlined two potential scenarios for the inflation path. In the first, which Daly said she still sees as most likely, inflation is short lived and the Fed can keep holding interest rates where they are. But a second possibility — that price increases from tariffs, higher energy costs and continued AI investment are compounded — is becoming increasingly likely, she warned. Inflation would then become more broad based and persistent, requiring more aggressive action from the Fed.Daly said policymakers should carefully monitor the likelihood of the second scenario, and watch incoming data carefully over the coming weeks.“If we find that scenario two is taking hold then I think the question would be, ‘why do it incrementally?’” she said, referring to possible rate increases, adding that it might be best in that case to adjust policy as quickly as possible.Daly also warned that while long-term inflation expectations are well anchored right now, another move up there — following the uptick after the inflation surge of 2022 — could prove more challenging for policymakers to return to normal.This advertisement has not loaded yet.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. 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