MNI BRIEF:Daly Eyes Global Trends To Avoid Fed Over-Tightening

San Francisco Fed President Mary Daly said Tuesday she's watching for strains in global economies and markets to ensure U.S. monetary policy doesn't become too restrictive, while noting inflation remains the dominant problem.

“We have to acknowledge and understand the impact that raising the interest rate or dollar appreciation against other currencies has on global growth, and on global financial conditions,” she said in answering an audience question about potential fallout from a stronger U.S. dollar.

“Ultimately those things feed back onto the U.S. I mean we can think of them as a global headwind," Daly said. "If Europe goes into a recession, that’s a headwind, if China falters, that’s a headwind on our growth, and we have to take that into account so that we don’t end up over-tightening.” Global bond yields have surged this year amid rapid inflation and a wave of policy rate increases.

The Fed has no mandate to coordinate tightening, Daly said, but again noted U.S. policymakers must be aware of wider hiking cycles. She also said the Treasury sets currency policy and the Fed's mandate is managing the domestic economy.

The Fed needs to hike to 5%, former Fed visiting scholar Michael Bordo has told MNI.