Fed's Daly: In a "watch and see" position on monetary policy right now

President and Chief Executive Officer of the Federal Reserve Bank of San Francisco, Mary Daly, who is speaking at the RBNZ / IMF conference in New Zealand, has said that she is in a "watch and see" position on monetary policy right now.

Key comments:

• Saw July rate cut as a recalibration of policy, to be slightly accommodative.
• Says I'm convinced using our tools early and pre-emptively is better than waiting.
• Better to avoid the ditch rather than digging yourself out of the ditch.
• Says US growing at solid pace, business investments off but overall economy growing.
• Economy is well positioned to continue to grow slightly above trend, reach inflation target.
• Concerned about not achieving our 2 % inflation target.
• Headwinds include uncertainty, global growth slowdown.

Earlier, Daly warned of the dangers of keeping interest rates very low for a long time, saying there was no free lunch. President Trump on the other hand tweeted that the Fed “cannot “mentally” keep up with the competition –other countries”.

FX implications: 

The Fed is a major risk to the FX space and the September meeting is around the corner.  The bond market is pricing in a disaster in financial markets and there is no let up in rising prices. The US 2-year Treasury yields edged down again overnight by 2basis point to 1.50% while the 10-year yield ranged between 1.45% and 1.48%. "Markets are pricing 26bp of easing at the 19 September Fed meeting, and a terminal rate of 0.92% (Fed funds rate currently 2.13%)," analysts at Westpac noted.