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The Federal Reserve in the US is considering a gradual approach to lowering borrowing costs, according to Mary Daly, president of the San Francisco Fed. Daly expressed confidence in controlling inflation and suggested adjusting borrowing costs from 5.25% to 5.5%.
Her cautious stance contrasts with concerns from economists about a potential economic slowdown that would require rapid interest rate cuts.
The upcoming annual meeting in Wyoming, where central bankers will gather, will focus on the pace of rate cuts in the US. Fed chair Jay Powell’s speech at the event will be closely watched for insights on managing inflation without harming the economy.
Investors are anticipating a rate cut at the next Fed meeting, with markets pricing in a 70% chance of a quarter-point reduction. The US is expected to end 2024 with interest rates one percentage point lower than the current level.
While other central banks have already cut rates, the Fed had held off due to higher inflation earlier this year. Recent data shows inflation easing, giving Daly confidence in moving towards price stability.
Daly emphasized the need to adjust policy rates to align with economic conditions, aiming to strike a balance between loosening restrictions and maintaining inflation control.
Daly warned against delaying rate cuts too long, citing risks to the economy. Recent economic indicators have been mixed, with concerns over a potential recession offset by stronger retail sales figures.
Businesses are adjusting to a changing economic landscape by cutting discretionary spending rather than resorting to layoffs, Daly noted.