Fed’s Mary Daly says ‘our job is far from done’ to raise rates
Mary Daly, president of the Federal Reserve Bank of San Francisco, poses after delivering a speech on the U.S. economic outlook, in Idaho Falls, Idaho, U.S. November 12, 2018.
Ann Sapphire | Reuters
The Federal Reserve still has a lot of work to do before it gets inflation under control, which means higher interest rates, San Francisco Fed President Mary Daly said Tuesday.
“People are still struggling with the higher prices they’re paying and the price going up,” Daly said during a LinkedIn Live interview with CNBC’s Jon Fortt. “The number of people who cannot afford this week what they easily paid for six months ago just means our job is far from done.”
So far this year, the central bank has raised its benchmark interest rate four times, for a total of 2.25 percentage points. This came in response to inflation at an annual rate of 9.1%, the highest level since November 1981.
In July, the Fed raised its key rate by 0.75 percentage points, as it had done in June. This is the largest consecutive increase since the central bank began using the policy rate as its main monetary policy tool in the early 1990s.
But Daly said no one should take these big moves as an indication that the Fed is ending its rate hikes.
“No way nearly done,” she said as she assessed progress. “We’ve gotten off to a good start and I’m really happy with where we’ve gotten to this stage.”
Futures prices indicate that markets see the Fed raising rates by 0.5 percentage points in September and another half percentage point through the end of the year, taking the funds rate to a range of 3.25% to 3.5%, according to data from the CME group. It is then expected that as the economy slows due to policy tightening, the Fed will then begin to cut spending by next summer.
Daly pushed back on that notion.
“It’s a headache for me,” she said. “I don’t know where they find that in the data. For me, that wouldn’t be my modal perspective.”
Chicago Fed Chairman Charles Evans also spoke on Tuesday morning, saying the Fed should keep its foot on the brake until it sees inflation come down. He expects policymakers to hike rates by half a percentage point at their next meeting in September, but left the door open for a bigger move.
“Fifty [basis points] is a reasonable assessment, but 75 could also be OK,” he told reporters. “I doubt more is needed. A basis point is 0.01 percentage point.
“We wanted to go to neutral quickly. We want to get a little restrictive quickly,” Evans added. “We want to see if the real side effects will start to come back…or if we have a lot more ahead of us.”
However, he also said he hoped the Fed could soon halt rate hikes as inflation falls.
Neither Evans nor Daly are voting members this year on the Federal Open Market Committee responsible for setting rates, although they participate in policy sessions.
The Federal Open Market Committee responsible for setting rates does not meet in August, when it holds its annual symposium in Jackson Hole, Wyoming. It then meets on September 20 and 21.