Mary Daly, President of the Federal Reserve Bank of San Francisco, poses after giving a speech on the U.S. economic outlook, in Idaho Falls, Idaho, U.S., November 12, 2018.
Ann Saphir | Reuters
The Federal Reserve still has a lot of work to do before inflation is brought under control and that means higher interest rates, San Francisco Fed President Mary Daly said Tuesday.
“People are still struggling with the higher prices they pay and the rising prices,” Daly said Direct interview on LinkedIn with CNBC’s Jon Fortt. “The number of people who can’t afford this week what they easily paid six months ago just means our job is far from done.”
Chicago Fed President Charles Evans alone opened the door to the possibility of another big rate hike coming, but said he hopes it can be avoided, with the Fed being able to reduce inflation without having to. policy tightening.
So far this year, the central bank has raised the prime rate four times, for a total of 2.25 percentage points. That answered inflation at 9.1% annuallythe highest level since November 1981.
Fed in July increase its fund rate by 0.75 percentage points, like it rose in June. These are the largest consecutive increases since the central bank began using the deposit rate as its main monetary policy tool in the early 1990s.
But Daly cautioned that no one should take those big moves as a sign that the Fed is easing up on rate hikes.
“Nowhere is close to being done,” she said as she assessed progress. “We’ve had a good start and I’m really pleased with the position we’ve reached at this point.”
Futures pricing shows the market sees the Fed raise rates by 0.5 percentage points in September and another half a percentage point through year-end, bringing deposit rates to a range of 3, 25% -3.5%, according to CME Group data. That scenario assumes that the economy will slow down due to policy tightening and the Fed will start cutting interest rates next summer.
But Daly rejected that view.
“It was a puzzle for me,” she said. “I don’t know where they find that in the data. For me, it’s not my modal outlook.”
Evans, her Fed colleague, also spoke on Tuesday morning, saying that the central bank is likely to hold the brake pedal until it sees inflation fall. He expects policymakers to raise rates by half a percentage point at their next meeting in September, but leaves the door open for a bigger move.
“Fifty [basis points] is a reasonable assessment, but 75 may well be okay,” he told reporters. I suspect that there will be more. “The base point is 0.01 percentage points.
Evans added: “We want to go to neutral quickly. We want to have a bit of a restriction quickly.” “We wanted to see if the side effects really started coming back…or if we had more things ahead of us.”
However, he also said he hoped that policymakers could pause rate hikes soon as inflation eases.
This year, neither Evans nor Daly are voting members on the Federal Open Market Committee that sets rates, although they do participate in policy sessions.
The FOMC does not meet in August, when it holds its annual symposium in Jackson Hole, Wyoming. Its next two-day meeting is next month, September 20-21.
