San Francisco Federal Reserve President Mary Daly on Friday pumped the brakes on Wall Street's aggressive interest rate cut bets.
During an interview with FOX Business' Charles Payne, Daly warned that it would be "premature" to think rate reductions are around the corner, and said she needs to see further evidence that inflation is returning to the central bank's 2% target rate.
"While I think it’s appropriate for us to look forward and ask when would policy adjustments be necessary, so we don’t put a stranglehold on the economy, it’s really premature to think that that’s around the corner," she said.
Daly, who is a voting member of the policy-setting Federal Open Market Committee this year, stressed the need to see signs that inflation is falling "consistently and sustainably for me to feel confident enough to start adjusting the policy rate."
WHEN WILL THE FEDERAL RESERVE START TO CUT INTEREST RATES?
Central bankers signaled in December during their final meeting of the year that their nearly two-year battle against inflation has finally come to an end — and that a series of rate reductions are in the pipeline.
Updated quarterly economic projections laid out after the meeting show that a majority of Federal Open Market Committee officials expect rates to fall to 4.6% by the end of 2024, suggesting that there will be at least three quarter-point rate cuts next year. Policymakers also penciled in additional rate cuts in 2025 and 2026.
THE INFLATION FIGHT FACES A 'DIFFICULT' LAST MILE
But traders are betting on even steeper rate cuts, starting as early as March, despite the hotter-than-expected December inflation report. About 47% of investors are currently pricing in at least a quarter-point cut in March, according to the CME Group's FedWatch tool, which tracks trading. That is down sharply from a week ago, when about 77% of investors expected a March rate reduction.
While inflation has cooled considerably in recent months, it remains up 3% compared with the same time a year ago, according to the most recent Labor Department data. Even with the recent declines, Americans continue to pay more for a number of necessities, including food, medical care and rent.
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Yet, the rapid rise in rates has not stopped consumers from spending, or businesses from hiring.
The labor market is continuing to chug along at a healthy pace, with employers adding 199,000 new workers in November. Job openings remain high, and the unemployment rate recently fell to 3.7% from 3.9%.
Fed officials hold their next meeting January 30 and 31. They are widely expected to hold interest rates steady for the third straight month.
