Fed’s Daly discusses dual scenarios for interest rate amid inflation uncertainty

San Francisco Fed President Mary Daly articulated the challenges surrounding US inflation, describing it as likely to be a “bumpy ride” going forward. In her comments yesterday, Daly highlighted there is “uncertainly about what the next few months of inflation will look like”.

Daly presented two potential scenarios that could influence Fed’s interest rate decisions. In the first scenario, if inflation continues on its recent downward trend alongside a cooling job market, Daly noted that lowering interest rates would be appropriate.

Conversely, Daly outlined a second scenario where inflation does not decline as expected but instead remains stagnant, as observed in the first quarter of this year. In such a situation, Daly stated that it would not be appropriate to cut interest rates, unless there is a concurrent weakening in the job market.