Fed’s Daly: December wage data was one month of data, can’t declare victory

San Francisco Federal Reserve Bank President Mary Daly is dropping important comments in a live questions and answers with the Wall Street Journal.

Key notes

Expect US economy to continue slowing.

In Q1 expect labor market to continue to slow, inflation to come down.

Fed is data-dependent.

Have not seen core services inflation come down as we would like.

Core services inflation excluding shelter has shown no sense it is coming down.
There’s agreement among fed policymakers that inflation is more persistent than thought.
Biggest risk is that inflation expectations would drift up.
We are determined, united, resolute to bring inflation down.
Wage growth coming down is completely consistent with labor market slowing.
Still out of balance in labor market.

December wage data was one month of data, can’t declare victory.
It’s too soon to declare victory and stop rate hikes.

We don’t need to see inflation get to 2%, or even down to a stone’s throw before we would stop raising rates. This phase of tightening is extremely challenging.

This phase of tightening is extremely challenging.
Reasonable for rates to be 5%-5.25%.
Likely to be 5%-5.25%.
Meeting by meeting means we don’t want to forecast uncertain decisions.
50 bps or 25 bps are on table for next fed policy meeting.
Doing rate hikes in gradual steps gives more chance to account for lags.
Not going to wall off a 50 bps rate hike as not likely, haven’t even seen cpi data.
Would like to see improvement on core-services ex housing.
Want to bring inflation down ‘as gently as we can’ and a case can be made for either 50 bps or 25 bps rate hike.
Have not seen signs of wage-price spiral.
Want to be mindful on both sides.
Estimate unemployment to rise to 4.5% or 4.6%.
Would be terrific if the unemployment rate comes up less.
Wee inflation in low 3s by end of year.
Expect inflation to get closer to 2% by end of ’24, 2% by early ’25.
To bring inflation down faster than that would require enormous labor market pain.
Changing inflation target is not on the table at all.

US Dollar update

The US Dollar was at a 7-month low, last down 0.77% at 103.11. The index, which measures the greenback against six major currencies, tumbled 1.15% on Friday as investors moved into riskier assets following a mixed labour market report and earlier dismal US PMIs. 

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