NEW YORK (Reuters) - The next several weeks will be key to showing how much of an argument there is for an interest rate cut to counteract weak inflation pressures and uncertainty over U.S. trade policy, a central bank policymaker said on Wednesday.
Uncertainty over whether the U.S. and China will reach a trade deal could slow growth in an economy that is also consistently failing to reach the Fed’s 2% inflation target, concerns that could bolster the case for a rate cut, San Francisco Federal Reserve Bank President Mary Daly said at an event in New York.
“This is a challenging time,” said Daly. “Risk management is on my mind,” she said.
Daly does not currently vote on the Fed’s policy-setting committee but participates in its discussions. Her openness to arguments for a rate cuts show just how much the last several weeks have shaken policymakers who as recently as December were raising rates.
Fed Chairman Jerome Powell on Tuesday said he and his colleagues are “grappling” with whether current risks to the economy warrant a cut that markets widely expect and President Donald Trump has demanded.
The Fed committee next gathers on July 30-31. In the meantime, policymakers will be watching data on U.S. economic growth and jobs. There is also the G20 summit in Osaka, Japan, at the end of the week, where Trump is due to meet one-on-one with at least eight world leaders, including Chinese President Xi Jinping. The two leaders have been at odds on how to resolve disagreements that led to tit-for-tat import taxes.
Daly told reporters after an economics event that she is concerned about the effect tariffs are having on business and consumer confidence as well as the fact that inflation is persistently falling short of the Fed’s 2%-a-year goal. Growth at or below the economy’s long-run trend will not boost inflation, she said.
But she said she had not seen enough hard data previously to support a rate cut. Two of her colleagues, Minneapolis Fed president Neel Kashkari and St. Louis Fed president James Bullard, called for a cut at the most recent Fed meeting on June 18-19. Among other things, Daly said she wants to see if a disappointing May employment report was a blip.
That Labor Department report released earlier this month showed the economy created 75,000 jobs in May, a sharp step-down from 224,00 in April. Policymakers say they typically look past single data points in assessing the economy. The jobs report for June is due next week.
Reporting by Trevor Hunnicutt; Editing by Chizu Nomiyama
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