Federal Reserve Bank of San Francisco President Mary Daly said inflation data out Friday indicates monetary policy is working, but said it’s too early to tell when it will be appropriate to lower borrowing costs.
“It’s really challenging to look anywhere and not see monetary policy working,” Daly said on CNBC. “We have growth slowing, spending slowing, the labor market slowing, inflation coming down — that’s how policy works.”
The San Francisco Fed chief appeared on television shortly after the Commerce Department released its latest update on consumer spending and the central bank’s preferred inflation gauges.
The so-called core personal consumption expenditures price index, which strips out volatile food and energy items and is seen as a better measure of underlying inflation, increased 0.1% in May. That marked the smallest advance this year.
Daly said the Fed will remain data dependent, and emphasized the various scenarios that could unfold in the coming months. For instance, if inflation comes down slower than expected, she said, the central bank would have to hold rates high 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.”
Earlier this week, Daly warned the US labor market is nearing an inflection point, where future slowing could spur higher joblessness. Employers continue to add jobs at a solid pace, but the unemployment rate has ticked higher in recent months. The June jobs report will be released next week.
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