Mary Daly, President of the Federal Reserve Bank of San Francisco, poses after a speech on the U.S. economic outlook in Idaho Falls, Idaho, the United States, November 12, 2018.
Anna Sapphire | Portal
The Federal Reserve still has work to do before it gets inflation under control, and that means higher interest rates, San Francisco Fed Chair Mary Daly said on Tuesday.
“People are still struggling with the higher prices they’re paying and the rising prices,” Daly said during a live LinkedIn interview with CNBC’s Jon Fortt. “The number of people who can’t afford this week what they could easily pay for six months ago just means our work is far from done.”
Separately, Chicago Fed President Charles Evans raised the possibility of another big rate hike, but said he hopes it can be avoided and sees the Fed able to bring inflation down without harsh monetary tightening to have to apply.
So far this year, the central bank has raised interest rates four times by a total of 2.25 percentage points. This comes in response to inflation at 9.1% per year, the highest since November 1981.
The Fed raised its federal funds rate by 0.75 percentage point in July, the same as in June. That was the biggest increase in a row since the central bank began using interest rates 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 scaling back its rate hikes.
“Not nearly finished,” she said as she assessed the progress. “We’ve got off to a good start and I’m very happy with where we are now.”
Futures prices suggest markets are seeing the Fed hike rates another 0.5 percentage point in September and another half a percentage point by the end of the year, pushing the overnight rate to a range, according to CME Group data from 3.25% to 3.5%. The expectation then is that if the economy slows due to policy tightening, the Fed would start cutting by next summer.
Daly pushed that notion back.
“It’s a mystery to me,” she said. “I don’t know where they find that in the data. For me that would not be my modal perspective.”
Chicago Fed President Charles Evans also spoke Tuesday morning and said the Fed will likely keep its foot on the brakes until inflation falls. 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 guess, but 75 might be fine, too,” he told reporters. “I doubt that more would be required.” One basis point is 0.01 percentage points.
“We wanted to become neutral quickly. We want to get a little restrictive quickly,” Evans added. “We want to see if the real side effects come back… or if we have a lot more to come.”
However, he also said he was confident that the Fed could soon pause its rate hikes as inflation eases.
Neither Evans nor Daly are voting members of the rate-setting Federal Open Market Committee this year, though they attend policy meetings.
The rate-setting Federal Open Market Committee does not meet in August when it will hold its annual symposium in Jackson Hole, Wyoming. The next meeting will take place on September 20-21.