George Somewhat Cautious, Not So Daly

George (’22 voter) and Daly (’24) both point to worrying aspects of yesterday's inflation report but George more cautious on moving too fast with full affect from tightening still to play out vs a more hawkish Daly.

Rate path:

• George: Terminal Fed rate may need to be higher to cool prices. Needs to move policy into restrictive territory but sees risks in moving too fast to this higher level.
• Already seen sharp tightening in financial conditions and full affect on economy of Fed policy still to play out. Advocates steady, predictable rate hike path.
• Daly: Likely see going to 4.5-5% rates then holding, Sept projections still good guidepost for policy path. Retail sales show cooling that will feed to inflation.

On inflation:

• George: Sept report a reminder Fed has work to do. Broad-based nature worrisome, supply could be slow in helping us on inflation front. Must prevent high inflation seeping into expectations.
• Daly: Latest data very disappointing, not surprising. See inflation getting to 2% in next few years.

On labor market:

• Daly: Strong but cooling. Jobs gains till 100k above pace to keep steady