Daly Backs Fed's Decision on Steady Interest Rates Amid Inflation Concerns

Federal Reserve Bank of San Francisco President Mary Daly spoke at an economics conference in Tokyo on August 5, expressing her support for the decision to keep interest rates steady last week. The Federal Open Market Committee (FOMC) voted 10-3 in favor of holding its interest rate target between 3.5% and 3.75%, amid ongoing concerns about inflation.

Daly said that before making any further decisions, the Fed needs to collect more data on how it should respond to inflation above the 2% target. She noted that there are 'good reasons' to believe that supply-driven shocks will not have a lasting impact on inflation.

However, Daly also acknowledged that if inflation momentum appears to be building again, the Fed might need to respond aggressively to get price pressures back to target. She expressed concern about how the public might react to renewed inflation and noted that businesses now have limited pricing power, making it harder for them to pass on higher input costs.

Consumers are also highly focused on oil prices when thinking about inflation, Daly said, and an end to the Middle East conflict could help reduce price pressures in this area. Despite these concerns, Daly emphasized that the Fed should be 'vigilant' but prepared to take action if needed.