With inflation progress slow, Fed’s Daly says rate cuts may need to wait

“Ultimately the economy is heading to where we wanted it to be, on a sustainable trajectory where we can bring the rate back to neutral,” she said, adding that she estimates a “neutral” policy rate to be around 3 per cent. “The one challenge, of course, is that inflation remains above our target and the risks to inflation are more elevated than they were a year ago, so the consequence of that is we might have to hold policy tighter for longer than we had thought.”

Very gradual progress on inflation, she said, requires a restrictive monetary policy stance; and a strong economy gives the Fed plenty of time to wait for more clarity on the total impact of the new administration’s policies, which also include tax cuts, reductions to government spending, deregulation and immigration restrictions. So far, she said, the uncertainty over those policies has not slowed the economy.

“We haven’t heard a lot about pulling back and hunkering down,” she said. “Uncertainty has not stalled out activity … people are ready to engage.”

Daly noted that recent developments suggest Trump’s tariff policy will not be as big, broad, or take as immediate effect as what was initially announced – factors that could reduce its impact on the economy.