Fed's Daly: More rate hikes likely, but no urgency for October move
San Francisco Fed President Mary Daly said further rate hikes are likely needed to curb inflation, but the central bank can wait until its October meeting to decide. She argued the labor market's stability gives policymakers time to deliberate rather than react to one month of data.
San Francisco Federal Reserve President Mary Daly said on Wednesday that the US central bank will probably need to raise short-term interest rates further to tame inflation, but signalled there is no urgency to act at its October 27-28 policy meeting.
"We are more likely than not to need additional adjustments, but the timing of those adjustments to me is something we're still deliberating," Daly told Reuters in an exclusive interview. "I don't feel urgent that we have to decide with a limited set of information. I think we have the time that we need."
Several of Daly's colleagues have also indicated in recent weeks that the Fed is unlikely to raise rates this month. The policy rate currently sits in the 3.75 per cent-4.00 per cent range. Longer-term borrowing costs are even higher, with some, such as 7.5 per cent mortgage rates, dampening demand in parts of the economy.
Daly said financial markets understand the Fed's "reaction function", pointing to how traders responded to data released earlier on Wednesday showing consumer price inflation accelerated to 3.7 per cent in the 12 months through September, slightly faster than economists had expected. The Fed targets 2 per cent inflation by a different, but related, measure.
Though the initial reaction was "robust", with rate futures traders quickly betting on an October hike, investors "calmed" after parsing the data. Higher gasoline prices drove the overall increase, while underlying inflation, though still sticky, did not take a sharp upward turn.
"Definitely this data point suggests that the risk to inflation remains elevated," Daly said. "The risk to inflation has gone up more, but risks are not realities, and reacting on risk when you have time to make a good decision, to me, feels imprudent."
Daly said the labour market's continued stability gives the Fed room to focus on price stability. "Why force urgency when you don't need to have urgency? Why not take the time to be thoughtful and deliberate? And we have more meetings ahead of us," she said.
Financial market pricing now puts about a 40 per cent chance of a second straight Fed rate hike at the next meeting, higher than before the data but no longer pointing to an increase as the most likely outcome, as was the case shortly after the inflation report. The markets, she said, "understand that we're committed to price stability, and we will do what it takes to achieve it."
Policymakers "have a responsibility to communicate effectively to the public and be accountable, transparent and clear," Daly said. "The responsibility is to be crystal clear with people about what your objectives are, what you're accountable for and how you're going to balance the risks."