San Francisco Fed President Daly: US inflation expected to gradually fall, economic outlook still remains highly uncertain.

San Francisco Federal Reserve President Mary Daly said that although US inflation is expected to gradually decrease, there is still considerable uncertainty in the current economic outlook. If inflation continues to remain higher than expected, the Federal Reserve may need to adopt more proactive policies to address it. Daly stated at an event held in Santander, Spain on Thursday that the current monetary policy of the Federal Reserve is still at a slightly restrictive level, which will help push inflation down gradually. She pointed out that this spring, US military actions against Iran, along with tariff and oil price increases, collectively raised inflation pressures. However, with the US reaching a ceasefire agreement with Iran, international oil prices have significantly dropped, providing a positive signal for easing inflation. "The drop in oil prices gives us hope for easing inflationary pressures." However, she emphasized that it is still difficult to predict how the US economy will evolve in the future, and the Federal Reserve needs to be prepared for different scenarios. She stated that if inflation remains high above the target level, the Federal Reserve may need to take more aggressive policy measures to ensure price pressures are controlled. Last month, the Federal Reserve maintained the federal fund rate target range between 3.5% and 3.75% for the fifth consecutive time. However, the latest dot plot shows that out of the 18 policymakers, 9 expect at least one more rate hike this year, reflecting an increase in concerns at the decision-making level about sustained high inflation. Data shows that the preferred inflation index of the Federal Reserve, the Personal Consumption Expenditures (PCE) Price Index, rose by 4.1% year-on-year in May, reaching the highest level since April 2023, and has been above the long-term target of 2% for more than five years. Meanwhile, there are signs of cooling in the US job market. Data released on Thursday showed that job growth in the US slowed significantly in June, with the leisure and hospitality sector seeing the largest decline in employment since 2020. Regarding the future policy framework of the Federal Reserve, Daly stated that she supports researching new economic analysis methods and is willing to explore a more modern data assessment system, but emphasized that the Federal Reserve will not change its two statutory goals of achieving full employment and price stability. Daly said, "We will not change the goals, but we will continue to learn, improve, and hope to do better tomorrow than today." It is worth mentioning that since Kevin Warsh took over as Chairman of the Federal Reserve in May, several special working groups have been established to evaluate economic data applications, policy communication, balance sheet, productivity, and inflation framework issues in order to further reform the Federal Reserve policy-making system.