US Fed officials split on rate hike outlook as inflation risks persist
San Francisco Fed President Daly backs September's rate hike but says further increases depend on whether inflation shocks like tariffs, Middle East oil prices and AI demand are temporary or compounding. Kansas City Fed's Schmid sees need for more hikes despite rising credit costs.
San Francisco Federal Reserve Bank President Mary Daly said she supported the Fed's September interest rate hike, but whether further increases are needed depends on whether the shocks driving inflation are temporary or compounding and prolonged.
Speaking on 7 October, Daly said the current inflationary pressures stem from multiple sources, including tariffs, rising oil prices due to the Middle East conflict and the impact of artificial intelligence. If these factors prove short-lived, the central bank may not need to raise rates again. However, she warned that if a second round of tariff negotiations introduces more tariffs, they could compound with the first round and cause prolonged effects.
“If the shocks come quickly and go away quickly, and are only temporary, the Fed may not need to further raise rates,” Daly said. “But if the second round of tariff talks brings more tariffs, or if they compound with the first round, the impact could last longer.”
Daly also noted that rising demand for AI-related chips could further intensify inflationary pressures, extending the duration of the shocks.
Separately, Kansas City Federal Reserve Bank President Jeffrey Schmid said the Fed still needs to raise rates further to curb inflation, even if rising bond yields push up credit costs and weaken some sectors. He said the Fed is focused on short-term policy rates and believes more work remains.
Neither Daly nor Schmid has a vote on monetary policy decisions this year.