MNI BRIEF: Fed's Daly: Higher Yields Since Sep Equal To A Hike

Federal Reserve Bank of San Francisco President Mary Daly said Thursday the Fed can hold interest rates steady because restrictive policy and tight financial conditions are working to slow the economy and inflation.

"If we continue to see a cooling labor market and inflation heading back to our target, we can hold interest rates steady and let the effects of policy continue to work," she told the The Economic Club of New York. "Importantly, even if we hold rates where they are today, policy will grow increasingly restrictive as inflation and inflation expectations fall. So, holding rates steady is an active policy action." (See MNI POLICY: Softer Underlying Inflation Boosts Case For Fed Pause)

"The bond market has tightened quite considerably -- about 36 basis points -- since we met in September. Well, that is equivalent to about a rate hike," she said.

However, if activity begins to reaccelerate or financial conditions loosen too much, "we can react to those data and raise rates further until we are confident that monetary policy is sufficiently restrictive to complete the job," she said. "In other words, rather than a prejudged path of what policy will be, we need an open mind and optionality."