Fed's Daly suggests high inflation may persist ahead of CPI data

San Francisco Federal Reserve President Mary Daly said on April 10 that the U.S. faced an inflation challenge even before recent oil price shocks, and tackling it will now require more time. She noted that a rate cut would not be impossible if the conflict involving Iran is resolved quickly and oil prices fall. However, if inflation remains higher than expected for an extended period, the Fed will wait until it is confident the issue has been resolved, Daly added. She assessed the probability of a rate hike as lower than that of a cut or a hold. Daly warned that sustained high oil prices would affect not only inflation but also economic growth, pointing out that high prices are already spreading through the economy and causing consumers to reduce outings due to cost concerns. She emphasized, however, that this does not currently represent a fundamental price increase. The key issue is whether a ceasefire can be sustained, she said, adding that if it holds, the Consumer Price Index (CPI) data will be less significant. A high inflation figure itself would not be surprising to anyone, she remarked. Daly concluded that while bringing inflation down to 2% is crucial, it should not be done at the expense of employment. She assessed the current risks to the Fed's dual mandate of full employment and price stability as being largely balanced.