US Economy Unstable Amid Inflation Pressures and Labor Market Risks

San Francisco Federal Reserve President Mary Daly described the US economy unstable as inflation pressures persist and labor market risks grow.

She noted a divergence between cautious optimism among businesses and declining confidence among households.

While companies have so far avoided large-scale layoffs, Daly warned that conditions could shift quickly, potentially making the US economy unstable in the coming months.

Inflation Above Target

According to policymakers’ estimates, core inflation stood at around 3% at the end of last year, exceeding the Federal Reserve’s 2% target.

This gap reinforces concerns that the US economy unstable narrative could persist if price pressures remain elevated.

The Federal Reserve recently kept short-term interest rates unchanged, citing steady labor market conditions alongside lingering inflationary risks.

A Cautious Federal Reserve

Federal Reserve Chair Jerome Powell stated that the central bank is in a "good position" to respond to evolving conditions, emphasizing that upcoming decisions will remain data-dependent.

Vice Chair Philip Jefferson expressed "cautious optimism" about the 2026 outlook, projecting slightly above-trend growth, stable employment, and a gradual return of inflation toward the 2% objective.

Analysts suggest that balancing economic growth with inflation control will remain a delicate challenge, as policymakers navigate an environment marked by uncertainty and shifting market expectations.