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Fed's Daly downplays US recession fears, defends July rate cut

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Fed's Daly downplays US recession fears, defends July rate cut

Federal Reserve Bank of San Francisco President Mary Daly said the U.S. does not appear to be nearing a recession, but acknowledged growth concerns and trade uncertainties that have contributed to market fears of a global downturn.

"I don't think we're headed towards a recession right now," Daly wrote on online question-and-answer platform Quora.

"When I look at the data coming in, I see solid domestic momentum that points to a continued economic expansion," Daly said, citing a strong labor market, high consumer confidence and robust consumer spending.

Fears of a global downturn gained traction in recent days after the U.S. bond yield curve inverted, which is traditionally regarded as a harbinger of an economic recession.

"But considerable headwinds, like weaker global growth and trade uncertainties, have emerged — and they're contributing to this fear we see in the markets that a downturn is right around the corner. So one thing I'm looking closely at is whether the mood gets so out of sync with the data that the fear of recession becomes a self-fulfilling prophecy," Daly wrote.

The Fed official also defended the U.S. central bank's July 31 decision to lower the benchmark federal funds rate by 25 basis points, saying that she supported the cut "based around my desire to see our economic expansion continue — not because I see an impending downturn on the horizon."

Her comments come ahead of the Fed's annual Jackson Hole symposium later in the week of Aug. 19, with markets expected to keep an eye on Fed Chairman Jerome Powell's first public remarks since July's rate cut.