juyl19 2023
Federal Reserve Bank of San Francisco President, Mary Daly, stated that it is highly likely that Policymakers will need to increase interest rates further and maintain them at elevated levels for an extended Period of time in order to Address inflationary pressures. federal
speaking at Princeton University in New Jersey, Daly acknowledged that there is still more work to be done in order to overcome the current episode of high inflation. She emphasized that additional policy tightening, sustained over a longer duration, will likely be necessary to tackle the issue effectively.
Daly highlighted that inflation remains elevated across all sectors, including goods, housing, and other services. The uncertain nature of incoming data presents an unclear picture regarding the momentum of disinflation. While Daly does not have a vote on policy this year, she actively participates in federal Open Market Committee meetings and discussions.
Over the past year, the fed has implemented aggressive tightening measures, raising its benchmark policy rate from near-zero to a target range of 4.5 percentage to 4.75 percentage.
However, the pace of rate increases has recently slowed. After a half-point increase in December, the Fed shifted to a quarter-point move on February 1. This followed four consecutive 75-basis-point increases.
Daly asserted that the pronounced tightening measures were and continue to be appropriate given the persistent and significant inflationary readings. During the Q&A session following her speech, she mentioned the potential impact of lags but emphasized that the Fed could not afford to pause when inflation is still too high. federal
She further stated that it would be a mistake to assume that the Fed has completed all necessary measures and that the effects will simply materialize in due course. Daly emphasized the importance of continuing the tightening process to effectively address the situation. federal
During a call with reporters, Daly reiterated her support for raising rates to a range between 5% and 5.5%, which aligns with the median of 5.1% from the December dot plot. federal
Inflation, which reached a 40-year high last year, declined in the final three months of 2022 but rebounded in January. Data from that month also revealed robust consumer demand and strong hiring by companies. Daly emphasized that while the recent reversal is noteworthy, it does not necessarily indicate a change in the overall trend.
several of Daly’s colleagues have since suggested that interest rates may need to go higher than previously anticipated, and investors are now betting on a peak around 5.45 percentage .This level could potentially be reached through 25-basis-point rate hikes at each of the next three meetings. While Daly did not specify the extent of further tightening that she deems appropriate, she mentioned that her focus is more on the level the rate needs to reach rather than the pace.
Daly explained that a sufficient preponderance of evidence suggesting that the economy requires significantly more tightening would prompt a change in her stance on the pace. At present, her main focus is on determining the appropriate level at which rates should be maintained. federal
Policymakers are set to update their economic projections at the upcoming March 21-22 meeting.
Daly also discussed the uncertainty surrounding the key drivers of future inflation. Prior to the pandemic, fed officials struggled for years to reach the central bank’s 2% inflation target due to factors such as an aging workforce and sluggish productivity growth.
Now, new factors such as reshoring of manufacturing, a domestic labor shortage, increased investment in technology and infrastructure during the transition to greener energy sources, and potential shifts in inflation expectations could all exert upward pressure on inflation. The interaction between these forces and previous disinflationary factors remains to be seen, according to Daly.
She emphasized the need to gather data and conduct research to shed light on the likely path forward while the ongoing inflation shock continues to dissipate.
