Achieving sustained price stability and a healthy labor market in the U.S. economy is just the beginning. Mary Daly, President of the Federal Reserve Bank of San Francisco, believes that the Federal Reserve should not only stabilize the economy but also help achieve sustained economic expansion.

On Tuesday, Daly stated: "There will almost certainly be economic fluctuations, disruptions, and panics in the coming months and years, and the Federal Reserve cannot completely prevent the impacts of these shocks. But unless such events occur, and under the appropriate monetary policy mix, we can help create conditions for sustained growth."

Daly pointed out that the current state of the U.S. economy is "obviously much better than before," with inflation much lower than its peak in the summer of 2022, and the labor market no longer overheated. She also mentioned that the two longest periods of economic expansion in U.S. history—the 128 months in the 1990s and the 120 months before the COVID-19 pandemic—are worthy goals to pursue.

She said: "Significant changes occurred at that time. Businesses flourished, workers found jobs, and the growth of household income and wealth was widely shared."

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Although the current expansion is still in its "early" stage, Daly has already seen similar patterns. The labor force participation rate of workers aged 25 to 54 has reached a historical high, and the income gap between high-wage and low-wage workers is also narrowing. "Whether it's the expansion of the 1990s, the last one, or our current expansion—the message is consistent: sustained economic expansion benefits all Americans."

Although inflation has not yet reached the Federal Reserve's target of 2%, as economic conditions improve, monetary policy needs to be adjusted accordingly. As a current voting member of the Federal Reserve's Federal Open Market Committee (FOMC), Daly said that the Federal Reserve's decision last month to lower the benchmark interest rate by 50 basis points to a target range of 4.75%-5% was a necessary "re-calibration." "The FOMC needed to re-calibrate and made this decision at the September meeting. I believe this adjustment is 'moderate,' recognizing the progress we have made, and slightly easing policy, but not letting go completely."

She also pointed out that the 50 basis point rate cut in September is not the new normal. If inflation continues to decline gradually and the labor market maintains a broadly sustainable pace, Daly believes that one to two more rate cuts this year would be a "reasonable option." However, the pace of rate cuts will depend on discussions at each meeting.

Daly also cautioned investors and observers not to overinterpret recent remarks about "gradual rate cuts." She said: "It's not as important as people think. It just means we are in an uncertain space and will adjust based on clearer information in the future."

Despite the 50 basis point rate cut in September, Daly believes that monetary policy remains restrictive and will continue to put pressure on inflation to ensure it reaches the 2% target.

Currently, the public is concerned about what level the interest rate will eventually be set at, but Daly said that the Federal Reserve is still far from making a decision. The Federal Reserve's next interest rate meeting will be held on November 6-7. "The fact is, we have a long way to go to the final interest rate level. The real decision that needs to be made next is how quickly we should adjust to that level."Daly also noted that the United States may end this economic cycle with a neutral interest rate slightly higher than when it entered the cycle. She stated that she continues to assess economic conditions and balance the Federal Reserve's two main objectives: price stability and maximum employment. However, she emphasized that one should not overly rely on short-term reactions when evaluating data. "Over-reliance on data that may be revised can make the situation unstable and may lead to poor policy-making."

This caution is particularly important at present, especially after the recent hurricanes. Economists expect that the upcoming October employment report (to be released on November 1) may decrease by as many as 100,000 jobs due to the impact of hurricanes Helene and Milton. Despite this, Daly said that the employment report is not the core of her focus. She pointed out that when the economy is at a turning point, one cannot rely on "lagging data."

Daly also said that the current focus is on balancing the Federal Reserve's dual objectives, which differs from the past two years when the Federal Reserve tried to reduce inflation and slow down the economy. "We are not only worried about high inflation. We must ensure the full realization of the 2% inflation target while ensuring that the labor market meets the standards of full employment. And this is what people define as a 'soft landing' - ensuring that we achieve the 2% inflation target while avoiding a recession in the labor market."

"Continuous progress is not inevitable," she said. "We must remain vigilant, act cautiously, continuously assess economic conditions, and balance our two main objectives."