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Friday’s inflation data suggests that monetary policy is having the desired effect; however, it remains too soon to determine whether reducing borrowing costs is appropriate, said Federal Reserve Bank of San Francisco President Mary Daly.
Speaking to CNBC, Daly noted that growth, spending, inflation, and labor all are slowing. So, “it’s really challenging to look anywhere and not see monetary policy working.”
Her remarks came shortly after the Commerce Department published an update on the Federal Reserve’s preferred inflation gauge — the personal consumption expenditures price index. Headline and core numbers both cooled down in May.
But Daly emphasized the need for the Fed to remain data dependent to ensure inflation is on a sustainable path toward the 2% goal. If inflation retreats slower than forecast, she said, the Fed likely would have to hold interest rates higher for longer.
“If on the other hand, we get inflation coming down like it did at the end of last year and the labor market is staying intact or falters, we can actually adjust policy to respond to that,” she said. “It’s really too early to tell.”
On Monday, Daly said “inflation is not the only risk we face,” noting “we will need to keep our eyes on both sides of our mandate — inflation and full employment — as we work to achieve our goals.”