Mary Daly, president of the Golden Hills Federal Reserve Bank, hinted Thursday that she supported continued easing of U.S. monetary policy, saying she believed that the benefits of keeping the economy "hot" now outweighed the potential costs.
"At present, because inflation pressures are small and the threshold for full employment is rather uncertain, I tend to accommodate as many workers as possible in expansion," Daley said. She did not have the right to vote on Fed policy this year, but supported the Fed's decision to cut interest rates in July.
The U.S. unemployment rate is currently 3.7%, close to decades low. Meanwhile, inflation has been below the Federal Reserve's 2% target for many years. Daley called the situation "worrying" and reduced the policy space for the Federal Reserve to cut interest rates to cope with the economic downturn.
In a speech prepared for the New Zealand Central Bank and the International Monetary Fund (IMF), Daley did not say directly how she would weigh another interest rate cut when Fed policymakers met in September.
Nor did she mention trade uncertainty and the global economic slowdown, which were the main reasons why many Fed policy makers decided to cut interest rates in July and remain open to future interest rate cuts.
She insisted on an analysis of potential trends in the U.S. economy, including lower economic growth and interest rates, and a weaker correlation between low unemployment and high inflation than in the past.
Daley points out that her own research shows that the economic boom disproportionately benefits vulnerable groups such as African Americans, whose unemployment rate has recently hit record lows. Maintaining low interest rates could threaten financial stability by encouraging excessive risk-taking, she said, but she did not believe that record corporate debt currently poses a "serious" risk to financial stability.
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