President of the San Francisco Federal Reserve: Signs of weakening demand may have already appeared. Be alert to the drag on the economy caused by maintaining interest rates too high.

San Francisco Fed President Daly said that the U.S. economy may be experiencing a slowdown in demand, while inflationary pressure related to tariffs is currently under control. She warned that if the Fed maintains high interest rates for a long time, it could harm the economy. Daly said in an interview on Monday: "If you carefully analyze the data, you can see that service or housing inflation has not continued to rise, and more importantly, inflation expectations have not been driven up." She pointed out that the labor market is slowing down, wage growth is also moderate, so "we will not see too much pressure from the labor cost side." Daly emphasized, "Taking all these factors into consideration, we do not want to make the mistake of maintaining high interest rates for too long, otherwise we may find that we have already caused damage to the economy." Earlier in the day, Daly also outlined her views on the future direction of monetary policy in a blog post. She said that the Fed has cut interest rates by a total of 50 basis points this year, but whether further cuts are needed remains to be seen with an "open mind", carefully weighing both sides of the evidence. She did not explicitly state the policy inclination of the meeting in December. Due to the government shutdown causing disruptions in data releases, Fed officials are currently limited in their assessment of the economy. Even if data releases resume, the policy meeting on December 10 will still face a situation of insufficient information. In this context, Daly analyzed that the cooling wage growth reflects a cooling demand, which is a "negative demand shock"; while inflation, although still above target, is overall controlled and has not broadly increased due to import tariffs. She also compared the current situation with history, pointing out that the characteristics of the 1970s were deep-seated inflation, while the 1990s benefited from productivity improvements and the Fed's balanced strategy. "We cannot ignore the inflation of the 1970s or the post-pandemic inflation, but we cannot ignore other periods in history," she said. "We cannot sacrifice the possibility of growth and employment coexisting as in the 1990s just to avoid a repeat of the 1970s, this would be exchanging one mistake for another."