MNI BRIEF: Mild Tightening Can Keep Econ On Track -SF Fed Daly

The Fed and other central banks can modestly lift interest rates to tackle uncomfortably fast inflation while sustaining job growth, San Francisco Fed President Mary Daly said Thursday.

“Interest rates are very low across the globe, and raising them a little bit isn’t the same as constraining the economy, the economy will still have quite a bit of accommodation in it, even if we do a couple of rate increases in the U.S. or anywhere in the globe,” she said at a Central Bank of Ireland webinar.

U.S. inflation "has been higher than I’m comfortable with for a long time,” and "rising across broader sets of sectors than those directly affected by the Covid disruption,” Daly said. The economy faces price pressures linked to supply issues and millions of workers sidelined by the pandemic, she said.

“If we act too aggressively to offset the high inflation that’s caused by these supply and demand imbalances, we won’t actually do very much to solve the supply chain problems, but we will absolutely bridle the economy in a way that will mean less job creation.” Earlier she said the Fed is close to reaching both mandate goals.