Mary Daly, president and CEO of the Federal Reserve Bank of San Francisco, giving a speech in Singapore on June 3, 2019.
Monetary Authority of Singapore
The U.S. economy could be in danger if business sentiment and economic data go "out of sync," warned Mary Daly, president and chief executive of the Federal Reserve Bank of San Francisco.
Daly on Monday cited two instances when sentiment and data moved in opposite directions.
In December last year, she said, economic data releases were "good" but the mood among investors and businesses was "bad." And then the reverse happened in January, she added.
"What really keeps me up at night is the data and the mood getting out of sync and, eventually, the possibility that the mood becomes the self-fulfilling prophecy of the data," Daly told reporters on Monday at the Symposium on Asian Banking and Finance in Singapore.
She warned that if "people are really uncertain, they fear a recession or they fear a downturn and this gets incorporated into their thinking and then they spend or invest less." Subsequently, "less spending and investment creates a slowdown that we wouldn't have otherwise had," she said.
To be sure, Daly said she hasn't seen that phenomenon happening in the U.S. But her comments came as investors increasingly expect the Federal Reserve to cut interest rates despite the central bank indicating no change to rates "for some time.
Daly said for now, the U.S. economy is in "harmony" at nearly full employment, inflation slowly inching up toward the Fed's target of 2% and the federal funds rate is roughly at "neutral."
"I think right now patience is exactly the right approach," she said, referring to the the Fed's interest rates trajectory.
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