San Francisco Fed Pres. Daly: Monetary policy is restrictive. Progress isn't victory.

<p>San Francisco Fed Pres. Mary Daly is speaking and says:</p><ul><li>Monetary policy is restrictive.</li><li>Progress isn't victory, must remain resolute</li><li>To ensure we fully achieve goals, we need to finish the work.</li><li>We need vigilance and agility.</li><li>The economy still has considerable momentum.</li><li>We are a long way from 2% inflation and a long way from sustainable employment.</li><li>Even with recent slowing in the labor market, job growth remains well above what needed to keep pace with growth.</li><li>It's possible the slowing so far it will translate into steady march towards goal</li><li>There are real risks in inflation projection.</li><li>Will need to see progress on a super – core inflation to be confident we are on path to 2%.</li><li>If continue to see labor market and inflation calling we can hold rates steady</li><li>If financial conditions remain tight, that reduces need for more action from fed</li><li>But if calling inflation stalls or financial conditions loosen, will need to raise rates further</li><li>Need to keep an open mind, have optionality on rates</li><li>With rising bond yields, the need to do additional tightening by Fed is not there</li></ul><p>HMMM… I think the last comment is key. Remember the Fed has earmarked one more hike between now and the end of the year. </p><p>Daly is not a voting member this year.</p><p>Looking at yields:</p><ul><li>2 year yield 5.02% -3 basis points</li><li>5 year yield 4.678% -4.3 basis points</li><li>10 year yield 4.712% -2.3 basis points</li><li>30 year yield 4.876% -0.1 basis points</li><li>Dow Industrial Average is down -110 points. </li><li>The S&amp;P is down -21 points and the</li><li> NASDAQ index down -72 points</li></ul><p>More from Daly:</p><ul><li>We could easily overcorrect – need to take time to do it right</li><li>I don't see dysfunction in the markets right now</li><li>Markets have a better sense now, I think about the Fed's reaction of function – that we want to get inflation down to 2%</li><li>We should not assume that we are now in a higher rate environment</li><li>There is a huge difference between renegotiating labor contracts and a wage-price spiral</li><li>We are not in a wage-price spiral</li><li>Short run inflation expectations have calmed down, and that releases wage pressure</li><li>I'm seeing a slowdown in hiring, but not a cliff</li><li>I don't see anything that's ringing an alarm bell about workforce</li><li>Going to start seeing more dispersion in the FOMC dot plot</li><li>If inflation comes down more than projected, Fed would need to calibrate policy</li><li>We are going to keep going until we are confident of inflation path to 2%</li><li>Market probabilities for Fed funds rate hike this year are not extraordinarily high, and that's consistent with how think about things</li></ul>

This article was written by Greg Michalowski at www.forexlive.com.