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‘Encouraging’ inflation trends? San Francisco Fed president sees some

The Federal Reserve’s battle against 40-year high inflation is still in its early stages but the president of the Federal Reserve Bank of San Francisco said Monday she sees some “encouraging numbers.”

Mary Daly, speaking to a gathering of local business executives at the Orange County Business Council offices in Irvine, noted October numbers hinted at some success. For example, the overall Consumer Price Index rose at a 7.7% annual rate – the smallest increase since January.

But, Daly said, “there’s no one in the world who thinks 7.7% is close enough to say this is price stability. So we have a lot of work to do.”

The “work” translates to more rate hikes. The Fed upped its key rate target from near zero in March to up to 4%.

And more increases are on the agenda for the central bank’s next meeting in December. Eventually, Daly thinks the Fed Funds rate could get as high as 5.25%, depending on how the economy reacts to additional throttling.

Daly’s “encouraging numbers” centered on falling prices for some key consumer goods, such as clothing, furniture and used cars that were found within October’s CPI report.

It’s just one month, Daly said, adding “I think I should underline that, or say it three times .. it’s one month.” Yet she was happy to see “the long-awaited decline in goods’ price inflation. But we’ll have to continue to see if that sticks.”

The Fed doesn’t have an easy job, she admitted. The central bank’s rate hikes have created a deep slowdown in housing markets and cooled the hiring pace – even with unemployment near record lows. She noted job openings are down 10% from their recent peak.

“We are still slowing, so that’s a bright spot in the idea of slowing is important to get the economy back into balance,” she said.

Daly noted she’s mindful – a word she repeatedly used through her talk – that an economic cooling means some people lose opportunities.

“Whenever I say bright spot I’m always mindful that on the other side of that slowdown is a human person, a worker,” she said. “So we always want to be mindful of that. But the truth about policy is we have to slow the economy to bring inflation down. This is why central banking is fairly unpopular.”

It’s a tough juggling act, with the Fed essentially sacrificing jobs to lower inflation that’s an especially nasty hit to lower-income wallets.

“We want to restore price stability, but we want to do it as gently as we can,” Daly said.

Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at [email protected]

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