Fed’s Daly: labor market is at a ‘worrisome’ point

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(Reuters) -San Francisco Federal Reserve Bank President Mary Daly said on Thursday that a softening labor market and easing inflation were reasons behind last month’s decision to cut rates, and prompted the Fed to signal the possibility of further rate cuts ahead.

“The economy is slowing a little bit. Consumers are running out of all the excess savings they might have had and they’ve been dealing with a higher price level. And then we have restrictive monetary policy,” Daly said at an event at the Silicon Valley Directors Exchange.

“We’re to a point now where the softening in the labor market looks like it could be more worrisome if we don’t risk manage it,” Daly said. Even after September’s rate cut monetary policy is “modestly restrictive” and putting downward pressure on inflation, she said.

“That interest rate cut we took — and we projected we might take more — those were cuts designed to risk manage as we move both our inflation goal and our employment goal to a more perfect balance,” Daly said.

Asked about the impact of artificial intelligence on the economy, Daly said there’s good reason to think it could be transformational, though enthusiasts may well be disappointed because typically innovations that transform economies typically take decades to do so.

This time it may be different, she suggested, not just because of the technology itself but also because the economy is slowing. Companies are loathe to hire employees that they might need to fire if demand falls further, and are therefore trying to find ways to use artificial intelligence to plug labor gaps.

“We’re now in a forcing function where we might see the gains come faster, not just because of the AI itself and what the technology can do, but also because of where we are in the economy and how firms might be able to use it,” Daly said.  

(Reporting by Ann Saphir; Editing by Muralikumar Anantharaman and Jacqueline Wong)