(Reuters) – San Francisco Federal Reserve Bank President Mary Daly on Thursday said the U.S. economy is still far from making “substantial progress” toward the central bank’s goals of 2% inflation and full employment, and from any need to reduce the Fed’s support for the economy.
“We are not there yet,” Daly told the Money Marketeers of New York University, noting there are millions of Americans still out of work, and that though prices are expected to rise temporarily in coming months, inflation is still “far” from sustainably reaching the Fed’s goal.
Daly said she expects a big rebound in economic activity in the second half of the year, followed by slower growth next year, and cautioned against overreacting to strong economic data.
“I’m optimistic… but there’s also some downside risks here,” she said. “Let’s not get too excited when we see a sequence of good numbers — let’s stay on the path of everybody who lost a job needs an opportunity to really get back to the labor market.”
The Fed has promised to keep buying bonds at a pace of $120 billion a month until it sees “substantial further progress” toward its goals. It has also said it will keep rates at their current near-zero level until the economy reaches full employment, and inflation is at 2% and headed higher.
Asked whether the Fed will first taper its bond purchases, end them entirely, and then begin raising rates — the order by which it reduced policy accommodation following the last crisis — Daly said that it was too early to even talk about that.
“We will obviously discuss what the right approach to normalization is when we get to a point where normaliziation is appropriate to discuss – we are not there yet,” Daly said. But, she added, “particular sequences are not as important as clear and transparent communication.”
Source: Economy - investing.com
