Federal Reserve Bank of San Francisco President Mary Daly has indeed warned that the U.S. labor market is approaching an inflection point. She emphasized that further slowing in the labor market could lead to higher unemployment. While the labor market has adjusted slowly so far, Daly cautioned that we are getting closer to a point where this benign outcome may be less likely. Firms may need to adjust not only vacancies but actual jobs, potentially resulting in increased unemployment. Importantly, she highlighted that inflation is not the only risk they face.
Daly’s remarks come amid bumpiness in inflation data this year, which has not inspired full confidence. Recent readings showing a step down in price growth have been somewhat encouraging, but it remains uncertain whether the economy is truly on track to price stability. Policymakers have been cautious about lowering interest rates, and Daly urged them to remain vigilant and open to various scenarios. She emphasized that policy must be conditional, responding appropriately to changes in inflation and labor market conditions.
The San Francisco Fed President Mary Daly is warning of a possible ‘spike’ in unemployment ahead amid cooling labor data and rising unemployment #MacroEdge
— MacroEdge (@MacroEdgeRes) June 25, 2024
Where in the cycle? pic.twitter.com/7rSK4EzGPd
— Don Johnson (@DonMiami3) June 25, 2024