MNI: Fed's Daly Sees Some Caution After March Liftoff

San Francisco Fed President Mary Daly said Wednesday that while interest rate liftoff is likely coming next month, over a longer horizon the case for tightening will run into obstacles such as the drag of population aging and limited room for fiscal stimulus.

The Fed's improvements in communications since the stubborn inflation of the 1970s will keep price gains more stable and suggest that kind of price spiral won't return, she said in the text of a speech.

"It is time to move away from the extraordinary support that the Fed has been providing during the pandemic and bring monetary policy in line with the challenges of today," and that's likely in March, Daly said. "The timing and magnitude of future funds rate and balance sheet adjustments will depend on how the economy and the data evolve."

"We will also have to keep in mind that many of the challenges that existed pre-pandemic will likely still be with us. Notable for policy are slower global growth, less monetary and fiscal policy space, and the associated downward pressure on inflation," she said.

While inflation is too high, markets are signaling they see the Fed's pledge to curb inflation as credible, Daly said. "The main reason I’m confident we are not heading for another 1970s-style Great Inflation is that the Federal Reserve is different," she said.