On Tuesday local time, San Francisco Fed President Daly said that despite a significant rate cut last month, the Fed's monetary policy still remains restrictive and is working to lower inflation.

During an event held at New York University, Daly pointed out that the 50 basis point rate cut in September was an "appropriate adjustment" to the interest rate policy stance. The Fed has made significant progress in fighting inflation, hence relaxing monetary policy, but will not let go.

Daly believes that even with this adjustment, monetary policy is still restrictive, exerting additional downward pressure on inflation to ensure it reaches the target level of 2%.

Daly reiterated on the same day that she believes the Fed may cut rates again one to two times this year, each time by 25 basis points. In the long run, the current interest rates still have a "long way to go" to reach potential levels.

While Daly did not explicitly state how she hopes future monetary policy will develop, she emphasized that the Fed "must remain vigilant and act consciously," striving to maintain the inflation rate at the target level while ensuring full employment.

She said: "People want to know where rates will ultimately settle? But the fact is, we have a long way to go to possibly solve the problem. Therefore, the real decision before us is how, and at what speed, to adjust to this level."

Last month, the Federal Reserve lowered the federal funds rate to 4.75%-5%, acknowledging easing inflation pressures, rising risks in the job market, and planning to cut rates by about 50 basis points before the end of the year. However, strong non-farm data in September showed job market vitality beyond most people's expectations, raising doubts among investors about the speed and scale of future rate cuts.

In her speech, Daley stated, "The economic situation has improved significantly," with inflation pressures decreasing significantly, and the employment market currently moving towards a more sustainable path. She added, "The risks facing inflation and employment are currently in a balanced state."

She explained that the current unemployment rate of 4.1% is close to the long-term average level, the labor market has cooled down, basically returning to the normal level before the pandemic, and the employment market is "no longer the main source of inflation pressure".

Regarding the reduction of the balance sheet, Daley claimed that the Fed is indeed more aggressively reducing the balance sheet, much faster than the previous reduction, and of course faster than the previous normalization process, while still being able to reduce the scale of the balance sheet without causing trouble to the market.

Daley also mentioned the banking crisis, stating that there is a need to pay more attention to interest rate risks, especially during these transition periods, where bank runs may occur at a faster pace now. "I do think we need to truly understand what today's bank run means, especially when people can easily and at no cost transfer their money, the panic on social media could turn into a bigger problem."

Editor/Rocky