(Reuters) – San Francisco Federal Reserve President Mary Daly on Wednesday said the U.S. central bank won’t be taking the “punch bowl” preemptively from the economy as the recovery gains momentum and unemployment falls.
The Fed will use a “dose of patience” and will not get “overly joyous” as the jobless rate falls, Daly said at a virtual event held by Northeastern University. “We are not going to take this punch bowl away.”
Critics worry that leaving interest rates low for too long could bring on higher inflation.
Daly said the specter of high inflation is not a fear the Fed should be reacting to: over the past 20 years, and projecting forward to the next decade, the risk is that inflation runs too low rather than too high, she said.
The Fed has pledged to keep its benchmark overnight lending rate at the current near-zero level until the economy reaches full employment, inflation hits 2%, and is projected to run above the level for some time. Fed forecasts suggest most policymakers believe that will take at least through 2023.
Interest rate futures reflect investor skepticism that rates will stay low that long.
Though Daly didn’t specifically address when she expects the Fed will start raising rates, she made it clear there is no rush.
“We are committed to leaving the monetary policy accommodation in place until the job is fully and truly done,” she said.
(Reporting by Ann Saphir, Editing by Franklin Paul and Paul Simao)
