The San Francisco Fed chief, Mary DAly commented on monetary policy and the economy today after readings of lower-than-forecast inflation and slightly higher claims from the States. Daly invariably conveyed that the Fed's mission is to fight inflation and today's CPI reading was as expected and does not at all mean a final victory. Her comments were devoid of the optimism caused by the reading and the market perceived them as hawkish.
- The Fed member indicated that there is a long way to go before rate cuts - when they occur will depend on the economy and the inflation path (this will be debated next year)
- Daly wants to see supercore inflation (services, without housing and energy) falling down to pre-pandemic levels - only then would she wait quietly with a pause in the rate hike cycle
- Of course, key core goods and housing inflation are falling but services has not shown much improvement so far.
- To support keeping rates unchanged the Federal Reserve would like to see all measures of inflation fall
- If core services excluding housing stalls, it will mean price pressures are too high
- The labor market is cooling off but there are still problems finding workers. The Fed wants the labor market situation to become more balanced (worsened)
- There is still a lot of data coming out before the September meeting. It's too early to talk about rate hikes or rate maintenance.
Futures contracts for the dollar index (USDIDX) recovered a lot of losses and rose from levels of 101.5 to 102.1.
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Source: xStation5
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