San Francisco Fed President Mary Daly expressed concern about the potential for a labor market slowdown to evolve into a broader economic downturn, stressing the importance of maintaining economic momentum. Speaking at an event hosted by the Hawaii Executive Collaborative, Daly addressed recent shifts in the job market and the Federal Reserve’s likely response.
Current Labor Market Conditions
Daly acknowledged that while the labor market is experiencing a slowdown, it has not yet shown signs of severe distress. “We are seeing a deceleration in hiring rather than widespread layoffs,” Daly noted. She emphasized that firms are reducing their hiring rates but are not resorting to significant layoffs, suggesting that the labor market is holding up better than market reactions to recent employment data might imply.
Economic Momentum and Fed’s Response
Daly highlighted the need for the Fed to act carefully to preserve the current economic momentum. Although unemployment is on the rise, Daly believes it is too soon to determine if the increase is too rapid. She stated, “We need more data to fully understand the trajectory of the economy.”
The San Francisco Fed President hinted at the possibility of future interest rate adjustments as inflation continues to decrease and unemployment edges higher. However, she refrained from specifying a timeline or the magnitude of potential rate changes.
Daly underscored the importance of not allowing the labor market slowdown to evolve into a more serious downturn, stressing that the Fed’s actions should aim to sustain economic growth and stability.
Market Reactions and Future Outlook
Daly’s comments come in the wake of a recent job report that contributed to a market selloff. Despite this, Daly maintains a cautiously optimistic outlook on the economy, urging a balanced approach to monetary policy to support continued growth.
“We have confirmed that the labor market is slowing,” Daly said. “It’s critical that we manage this slowdown effectively to prevent it from tipping into a more severe downturn.”
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