Takako Hatayama-Phillips
San Francisco Fed President Mary Daly maintained an aggressive tone when speaking to reporters after a speech she gave Saturday at Princeton University. Until you have full confidence that the US economy is heading towards 2% inflation in a reasonable amount of time. amount of time, “I will continue to support tightening,” he said.
With the January jobs report and hotter-than-expected inflation data, he’s keeping a close eye on the next round of data to see if it’s higher than expected. As such, “it’s really too early to discuss the details of the next policy adjustment,” she said.
The December summary of the Fed’s policymakers’ economic projections put the final policy rate range at 5-5.5% (compared to the current rate of 4.50-4.75%). . A continuation of January trends would make it lean toward further tightening, he said.
How high interest rates will have to go and how long they will have to stay there will depend on how the data develops. On Friday, the market had priced in a 71.6% probability of a 25 basis point rate hike at the Fed meeting on March 21-22, down from a 97.4% probability the previous month. Meanwhile, the probability of a 50bp hike increased to 28.4% from 0% the previous month, according to the CME FedWatch tool.
She sees a decent chance that the Fed can reduce demand and inflation without a recession. “My modal view is for the job market to cool down,” Daly said. Currently, jobs are being added at a rate greater than sustainable. Under such a scenario, the unemployment rate will “raise a bit” and “below-trend GDP growth” would provide “a smooth transition to a sustainable economy.”
If there is a reaccelerating trend in a tighter labor market, that would indicate that the policy is not tight enough and would mean rates would have to rise further, he said.
Some of the feedback you get from businesses in your district point to progress in the right direction. “What we’re hearing is that it’s easier to find workers, but it’s still hard to find workers,” Daly said. Also, companies are seeing more interest when they post a vacancy, but it still takes a long time to fill the vacancy.
You are also seeing that the wage increases being offered by companies are lower than they were a year ago. That points to a “positive direction in wage and hiring growth, but the bar is still too high,” he said.
Another positive sign is that companies are starting to get forward contracts and are able to set prices. That indicates that inflation expectations are starting to come down, he said.
Earlier, Daly said the Fed needs to tighten more as disinflation is far from certain.