Fed’s Mary Daly says ‘our work is far from done’ on raising interest rates

Mary Daly, president of the Federal Reserve Bank of San Francisco, poses after a talk on the US economic outlook, in Idaho Falls, Idaho, US, November 12, 2018.

Ann Sapphire | Reuters

The Federal Reserve still has a lot of work to do before it gets inflation under control, and that means higher interest rates, San Francisco Fed President Mary Daly said Tuesday.

“People are still struggling with the higher prices they’re paying and the rising prices,” Daly said during a live LinkedIn interview with CNBC’s Jon Fortt. “The number of people who can’t afford to pay for what they easily paid for six months ago this week just means our work is far from done.”

So far this year, the central bank has raised its benchmark rate four times, to a total of 2.25 percentage points. That is in response to an annual inflation rate of 9.1%, the highest level since November 1981.

The Fed raised its funds rate by 0.75 percentage point in July, the same as in June. That was the largest consecutive increase since the central bank began using the fund rate as its main monetary policy tool in the early 1990s.

But Daly said no one should take those big moves as an indication that the Fed is phasing out its rate hikes.

“Nearly finished anywhere,” she said, reviewing progress. “We’ve made a good start and I’m really happy with where we’ve come to this point.”

Futures prices indicate that markets will see the Fed hike another 0.5 percentage point in September and half a percentage point more through the end of the year, pushing fund rates to a range of 3.25%-3.5. %, according to data from the CME Group. It is then expected that if the economy slows due to policy tightening, the Fed would start cutting next summer.

Daly pushed back on that idea.

“That’s a mystery to me,” she said. “I don’t know where they find that in the data. For me that wouldn’t be my average view.”

Chicago Fed President Charles Evans also spoke on Tuesday morning, saying the Fed will likely keep its foot on the brakes until inflation drops. He expects policymakers to raise interest rates by half a percentage point at their next meeting in September, but left the door open for a bigger move.

“Fifty [basis points] is a reasonable estimate, but 75 could also be good,” he told reporters. “I doubt more is needed.” A basis point is 0.01 percentage point.

“We wanted to get neutral fast. We want to get a little restrictive fast,” Evans added. “We want to see if the real side effects will come back … or if we have a lot more ahead of us.”

The rate-setting Federal Open Market Committee will not meet in August, when it will hold its annual symposium in Jackson Hole, Wyoming. It then meets September 20-21.

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