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The Fed: Fed’s Daly: ‘We won’t be preemptively taking the punchbowl away’

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The Federal Reserve has made a big change” and adopted a policy framework that means the current FOMC won’t exit its easy policy stance as soon as might have happened in the past, said San Francisco Fed President Mary Daly on Wednesday.

In the past, Fed officials had joked that their job in the economy was to take away the alcohol so that the party didn’t get out of hand. This is no longer the case, she said during a webinar sponsored by Northeastern University.

“We won’t be preemptively taking the punchbowl away from the economy…in an effort not to let unemployment got too low,” Daly said.

“We want to discipline ourselves here and not get overly joyous that the unemployment rate is coming down while so many other measures of labor market activity remain well below pre-pandemic levels still needing to recover,” Daly said.

“So what you’re going to see in our framework is a good, healthy, and I think appropriate, dose of patience,” she added.

That also means “don’t react to the fears of things occurring,” said the San Francisco Fed president, who is a voting member of the FOMC this year.

Many economists are worried the Fed new policy may lead to a spike in inflation and that the Fed will have to quickly reverse course and tighten policy.

In its latest economic forecast released last week, the Fed projected that it will hold its interest rate near zero until at least the end of 2023.

Stocks closed lower on Wednesday
DJIA,
-0.01%

SPX,
-0.55%

COMP,
-2.01%

as investors worried about possible higher inflation pushing up interest rates.

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