Ann Safir | Reuters
San Francisco Fed President Mary Daly said Tuesday that the Fed still has a lot of work to do before it gets inflation under control, and that means higher interest rates.
“People are still suffering from the higher prices they pay and the higher prices,” Daly said during a live LinkedIn interview with CNBC’s John Fort. “The number of people this week who cannot easily pay what they paid six months ago means that our work is out of reach.”
So far this year, the central bank has raised the benchmark interest rate four times, bringing its total to 2.25 percentage points. This came in response to inflation, which averaged a 9.1% annualized rate, the highest level since November 1981.
The Fed in July raised its funds rate by 0.75 percentage points, the same rate it raised in June. It was the largest consecutive increase since the central bank began using the money rate as the main monetary policy tool in the early 1990s.
But Daly said no one should take those big moves as an indication that the Fed is cutting interest rates.
“Nowhere has it been completed yet,” she said in assessing progress. “We’ve gotten off to a good start and I’m really happy with what we’ve come to at this point.”
Futures pricing suggests that markets see the Fed raise rates another 0.5 percentage point in September and another half a percentage point through the end of the year, bringing the money rate into the 3.25%-3.5% range, according to CME Group data. It is then expected that with the economy slowing due to policy tightening, the Fed will start cutting by next summer.
Dali rejected this idea.
“That’s a mystery to me,” she said. “I don’t know where they find that in the data. To me, that wouldn’t be my typical look.”
Chicago Fed President Charles Evans also spoke Tuesday morning, saying the Fed will likely keep its foot on the brakes until it sees inflation come down. Policy makers are expected to raise rates by half a percentage point at their next meeting in September, but left the door open for a bigger move.
“fifty [basis points] “A reasonable assessment but 75 might be fine. I doubt more will be requested,” he told reporters. The base point is 0.01 percentage point.
“We wanted to get to neutrality quickly,” Evans added. “We want to get some restrictions quickly.” “We want to see if the real side effects start to come back in line…or if we have a lot ahead.”
However, he also said that he hopes the Fed will soon stop raising interest rates as inflation eases.
Neither Evans nor Daly participated in this year’s vote at the FOMC rate-setting FOMC, although they did participate in policy sessions.
The Federal Open Market Committee will not meet to set prices in August, as it will hold its annual symposium in Jackson Hole, Wyoming. It then meets on September 20-21.