San Francisco Federal Reserve Bank President Mary Daly poses for a group photo after a speech on the U.S. economic outlook in Idaho Falls, Idaho, U.S., November 12, 2018.
Ansafir | Reuters
San Francisco Federal Reserve Bank President Mary Daly said Tuesday that the Fed still has a lot of work to do before it controls inflation, which means higher interest rates.
“People are still struggling with the higher prices they’re paying and the prices that keep going up,” Daly said in a live LinkedIn interview with CNBC’s Jon Fortt. “A lot of people this week can’t afford what they easily paid six months ago, which means our work is far from done.”
Separately, Chicago Fed President Charles Evans opened up the possibility of another big rate hike in the future, but said he hoped that could be avoided and believed the Fed could bring down inflation without having to resort to draconian policy tightening .
So far this year, the central bank has raised its benchmark interest rate four times, totaling 2.25 percentage points. This was in response to an annual rate of 9.1% inflation, the highest level since November 1981.
The Fed raised the funds rate by 0.75 percentage points in July, the same amount it raised in June. This is the largest sequential increase since central banks began using the funds rate as their main monetary policy tool in the early 1990s.
But Daly said no one should take these big moves as a sign that the Fed is cutting back on rate hikes.
“It’s hardly done,” she said as she assessed progress. “We’ve got off to a good start and I’m very pleased with what we’ve achieved so far.”
Futures pricing indicates that the market expects the Fed to raise rates by 0.5 percentage points in September and 0.5 percentage points by the end of the year, pushing the funds rate to a range of 3.25%-3.5%, according to CME Group data. The Fed is expected to start cutting interest rates next summer as the economy slows due to policy tightening.
Daly overturned the idea.
“It’s a mystery to me,” she said. “I don’t know where they are in the data. For me, that’s not my modal view.”
Chicago Fed President Charles Evans also spoke on Tuesday morning, saying the Fed will likely keep hitting the brakes until it sees a drop in inflation. He expects policymakers to raise rates by half a percentage point at their next meeting in September, but leaves the door open for bigger moves.
“Fifty [basis points] is a reasonable assessment, but 75 is fine,” he told reporters. “I doubt that more would be asked. A basis point is 0.01 percentage points.
“We want to get to neutrality quickly. We want to put some restrictions in place quickly,” Evans added. “We want to see if the real side effects start to come back…or if we have more to do.”
However, he also said he hoped the Fed would pause rate hikes soon after inflation fell.
Neither Evans nor Daly are voting members of the rate-setting Federal Open Market Committee this year, although they do participate in policy meetings.
The Federal Open Market Committee, which sets rates, will not meet in August, when it will hold its annual seminar in Jackson Hole, Wyoming. The next meeting will be September 20-21.