Before CPI Data Release, Fed's Daly Vaccinates Against High Inflation

April 10th – Federal Reserve official Daly said the U.S. already had inflation work to address before the oil price shock, and that work now will take longer. A rate cut is “not out of the question” if the Iran conflict resolves quickly and oil prices decline, she noted. But if inflation stays higher than expected for an extended period, the Fed will remain patient until it’s confident inflation is resolved. Daly added the likelihood of a rate hike is lower than that of a cut or holding rates steady. Persistently high oil prices would boost inflation and weigh on economic growth, she said—adding she’s already seeing price pass-through (e.g., people cutting travel due to cost concerns). However, she emphasized current price pressures aren’t fundamental; the Fed needs to monitor the conflict’s trajectory and how businesses pass on higher costs. The real issue is whether a ceasefire holds: if it does, CPI data becomes irrelevant, and high inflation readings won’t surprise anyone. Daly stressed hitting the 2% inflation target is critical, but not at the cost of employment (which would harm families). The Fed now faces a fundamentally balanced risk in achieving its dual goals of full employment and price stability, she said. — FXStreet