Fed’s Daly: Inflation bridles the economy

Reuters has reported that San Francisco Federal Reserve Bank President Mary Daly on Tuesday said she believes the US economy will slow to below 2% annual growth as the Fed raises interest rates, but there’s enough momentum that it won’t stop growing.

“I do expect the unemployment rate to rise slightly, but nothing (like)…. what people would think of as a recession,” Daly said in an interview on LinkedIn.

Key comments

The fed can address inflation, at least partly.

Supply is still very short, made shorter by the war in Ukraine.

Fed can reduce demand, which is about half of the cause of inflation.

Inflation bridles the economy.

getting price stability is a fundamental factor in achieving full employment.

The labour market is really strong right now.

The economy has a lot of momentum, which puts us in a better position of achieving a softer landing.

We will have slower growth, perhaps below 2%, but it won’t be negative.

Expect the unemployment rate to rise slightly, but not like in a recession.

We are tapping on the brakes to get to a more sustainable pace.

The global economy won’t grow as fast because of Ukraine, and that will be a headwind for the US economy.

Consumer and small business sentiment show pervasive effect of inflation.

I’m worried that left unbridled inflation would continue to threaten the US economy.

It is tough right now, but it will get better in part because of fed rate hikes, and signs of life in supply chains.

Mass layoffs in tech are not only related to slowing in the economy; tech is always repositioning itself.

Labor market is strong right now, despite layoffs; if you are in tech, you’ll be able to continue to get jobs.

US dollar update

The US dollar bulls moved in on euro weakness as European Central Bank (ECB) President Christine Lagarde offered no fresh insight into the central bank’s policy outlook.

Lagarde said the central bank would move gradually but with the option to act decisively on any deterioration in medium-term inflation, especially if there were signs of a de-anchoring of inflation expectations.

The US dollar index (DXY), which had made a two-decade high of 105.79 this month, was last up 0.462% at 104.517. The DXY had been as low as 103.77 and as high as 104.606.