MNI BRIEF: Daly Says Hikes Taking Economy To Sustainable Pace

Higher interest rates will bring the U.S. economy to a more sustainable place with a modest rise in unemployment and perhaps a short phase of negative GDP growth rather than a recession, San Francisco Federal President Mary Daly said Tuesday.

“The labor market is strong, that means we are raising interest rates on an economy with a lot of momentum, and that puts us in a much better position to achieve a softer landing,” she said on a webcast hosted by LinkedIn News. “I see us tapping on the brakes to slow to a more sustainable pace.”

Daly didn't reiterate her view given Friday that another 75bp increase is a good baseline for the next FOMC decision, but on Tuesday did stress that inflation is a major risk to the economy that must be addressed. Former officials have also told MNI that 75bps is the likely next move. (See: Fed Sees 75bp Hike As New Baseline- Ex-Officials)

The unemployment rate will “rise slightly” from today’s low levels and “getting it up a couple of tenths does not tip us into a recession, it simply means a softening of the robust growth,” she said. “Growth will slip below 2%, but it won’t actually pivot down into negative territory and leave us for a long period of time.”