Fed’s Daly: It Is Too Early To ‘Declare Victory’ On Inflation Fight (FT)

An FT interview with San Francisco Fed President Daly (’24 voter) has crossed recently.

• While Daly does not rule out another 75bp hike explicitly, she has highlighted her baseline view that a 50bp hike will likely be warranted at the September FOMC meeting, flagging “her initial support for the Fed to slow the pace of its interest rate increases.” Daly noted that “there is a lot of uncertainty, so leaping ahead with great confidence that (a 0.75 percentage point rate rise) is what we need and being prescriptive would not be optimal policy.” She cautioned “we have a lot of work to do. I just don’t want to do it so reactively that we find ourselves spoiling the labour market.”
• When it came to the possibility of slowing the pace of rate hikes Daly highlighted the already significant tightening of monetary policy, which is yet to full feed into the economy, while she was also cognisant of the deterioration in the global economic outlook.
• She also maintained her view when it comes to the idea that interest rates should move to just below 3.5% by year-end.
• Daly stressed that it is far too early for the Fed to “declare victory” in its fight against inflation. In lieu of Wednesday’s CPI report Daly noted that “there’s good news on the month-to-month data that consumers and business are getting some relief, but inflation remains far too high and not near our price stability goal,” although she was cautious that core inflation “showed little sign of moderating.”
• Ahead of the September FOMC gathering she stressed “what we need is not a good report on inflation. It’s encouraging, but it’s not evidence of the goal we really want,“ pointing to a need for broader data to indicate that the Fed is “on a path to bring inflation down substantially and achieve our price stability target.”