San Francisco Fed's Daly: Healthy economy needs less support

WASHINGTON (AP) — With interest rates ultra-low even as the U.S. economy swiftly improves, Federal Reserve officials are divided over how quickly they should adjust their policies.

Should they begin to withdraw their extraordinary support for the economy relatively soon? Or should they hold off until the job market has moved closer to full health?

The Fed's policymakers do agree on one thing: The economy is strengthening faster than they had expected.

In an interview this week with The Associated Press, Mary Daly, president of the Federal Reserve Bank of San Francisco, offered up her own perspective. The economy, Daly suggested, "is really shaping up nicely right now" and is "able to start functioning more and more on its own, which means we can withdraw a little bit of our accommodation.”

Yet she remains cautious about pulling back on the central bank's support, noting that “we're far from full employment,” one of the Fed's central goals.

On Friday, the government reported that employers added 850,000 jobs in June, the largest gain since August and a sign that the economic recovery remains in solid shape. Yet the unemployment rate ticked up from 5.8% to 5.9%, still far above the pre-COVID level of 3.5%.

Some other regional bank presidents have signaled that they want to start dialing back the Fed's support in the coming months. The Fed has pinned its benchmark interest rate — which influences the cost of borrowing for consumers and businesses — at zero since March 2020, when the viral pandemic erupted.

The central bank is also buying $80 billion a month in Treasurys and $40 billion a month in mortgage-backed securities in an effort to keep longer-term rates low and encourage more borrowing and spending.

On Wednesday, Robert Kaplan, head of the Federal Reserve Bank...