US calls for adjustments to Fed's monetary policy

The US Federal Reserve needs to take a gradual approach to lowering borrowing costs, one of its top officials has said, as the world’s leading central bankers prepare to gather at an annual meeting in Wyoming this week, Report informs referring to the Financial Times.

Mary Daly, president of the San Francisco Fed, told the Financial Times that recent economic data have given her “more confidence” that inflation is under control.

It is time to consider adjusting borrowing costs from their current range of 5.25 percent to 5.5 percent, she said. Her call for a “prudent” approach pushed back on economists’ concerns that the world’s largest economy is heading for a sharp slowdown that warrants rapid cuts in interest rates.

“After the first quarter of this year, inflation has just been making gradual progress towards 2 percent,” Daly said, speaking on Thursday. “We are not there yet, but it’s clearly giving me more confidence that we are on our way to price stability.”

With inflation in retreat and the labour market coming into better balance, the central bank has to “adjust the policy rate to fit the economy we have and the one we expect to have”. Daly said the Fed wanted to loosen the “restrictiveness” of its policy, while still maintaining some restraint to “fully get the job done” on inflation.

The Fed did not “want to overtighten into a slowing economy,” she said. She later added that failing to adapt policy to progress on inflation and lower growth was a “recipe for getting the result we don’t want, which is price stability and an unstable and faltering labour market.”