The U.S. Federal Reserve should “resist the temptation to act quickly” as it considers the right time to start cutting interest rates, a senior central bank official said on Friday.
“The economy is healthy, price stability is visible and there is more work to be done,” San Francisco Fed President Mary Daly said at a conference in Washington.
“It will take courage to get the job done,” said Daly, who is a voting member of the Fed’s rate-setting committee this year.
“We will need to resist the temptation to act quickly when patience is needed and be prepared to respond flexibly as the economy evolves,” he added.
The US central bank is currently in a holding pattern, after raising interest rates to a 23-year high to counter rising prices.
Senior US Fed official backs ‘cautious’ approach to rate cuts
With inflation inching closer to the Fed’s long-term target of 2 percent in recent months, officials have said they expect to start cutting interest rates this year.
However, they remain divided on the best time to do so, with some expressing concern about prematurely declaring victory over inflation.
On Friday, Dali warned against being overly optimistic about forecasts that show the world’s biggest economy is on track to beat inflation.
“Projections and expectations are just that: opinions about what we think will happen,” he said.
“We need more time and data to be sure they will materialize,” he continued, adding that the Fed could afford to take a more “phased approach.”
“Gradual doesn’t mean slow, it doesn’t mean weak,” he said. “It just means it’s not abrupt and urgent when you’re facing a lot of uncertainty and you’ve already got policy in place.”
Futures traders have also become more pessimistic about the chances of an early rate cut in recent weeks.
Steady UK inflation sparks talk of Bank of England rate cut
After forecasting a March cut as recently as December, they are now assigning a less than 50 percent chance the Fed will cut rates at either of its next meetings in March and May, according to CME Group data.
Instead, they have put a greater than 80 percent chance that the US central bank will have cut interest rates by June 12.
Source: AFP