At least four rate hikes needed this year and likely more, says Fed’s Daly

San Francisco Federal Reserve (Fed) President Mary Daly said she expects the Fed will have to raise interest rates at least four times this year, and probably more, to stem the acceleration of inflation and better align demand with supply.

“Inflation is too high and the monetary policy rate is too low”, he said at the World Affairs Council and Assembly in Los Angeles. The Fed will also have to start reducing its portfolio, after it has raised rates two or three times, he added.

With the US economy and labor market doing well but inflation running too high, it is “appropriate” to start winding down monetary expansion in March, he said.

“The timing and magnitude of future Fed Funds and balance sheet adjustments will depend on how the economy and data evolve.”, he stated.

Among the data he will watch, he said, is the transition from the COVID-19 pandemic to an endemic state; how quickly disrupted supply chains are recovering; the speed with which workers marginalized by COVID-19 are reinstated; and the speed with which the fiscal support that bolstered the economy’s recovery is fading away.

“We will monitor all these developments closely and let the data determine the appropriate path for monetary policy.”, assured Daly.

Inflation according to the Fed’s preferred gauge, the personal consumption expenditures (PCE) price index, rose 5.75% last year, the highest in about 40 years and more than double the central bank’s 2% target. .

As the Fed braces for what is expected to be a series of rate hikes and a sharp balance sheet shrinkage to stifle inflation, Daly’s remarks stand out as less aggressive than those of some of his colleagues.

His comments on Wednesday provided a clue as to why: his confidence that the Fed’s ability to communicate its inflation-fighting intentions, and thus shape inflation expectations, will prevent a spiral. bullish price trend as it did in the 1970s.

“Greater transparency and a strong commitment to achieving our goals assures Americans that periods of high inflation or unemployment won’t last forever; that there is an end in sight”.