Washington, November 10: Federal Reserve official Mary Daly cautioned on Sunday that the US economy faces growing downside risks from the prolonged government shutdown, warning of a potential “demand shock” even as inflation remains largely under control.
Speaking at an economic forum in San Francisco, the San Francisco Fed President said the central bank must tread carefully in its policy outlook, balancing the gains from cooling price pressures with the potential fallout from weaker consumer and business spending.
“The inflation trajectory is improving, but the risk of an abrupt slowdown in demand is real,” Daly said. “We need to be patient and steady rather than reactionary.”
Her remarks come amid mounting uncertainty in financial markets following the recent fiscal standoff in Washington, which has disrupted federal operations and strained consumer confidence. Daly emphasized that maintaining current interest rate levels would help preserve stability until clearer signals emerge from the labor and spending data.
Economists see Daly’s comments as reinforcing the Fed’s “higher-for-longer” stance, with the central bank unlikely to pivot toward rate cuts until early 2026. The Fed has already signaled a cautious policy path, highlighting resilience in employment but acknowledging fragility in private consumption.
Wall Street responded modestly to Daly’s remarks, with treasury yields dipping slightly as investors priced in lower near-term growth expectations.
