Fed's Daly: We don’t want to declare victory on inflation coming down

“Mary Daly, President of the San Francisco Fed, did not rule out a third consecutive 0.75 percentage point rate rise at the central bank’s next policy meeting in September, although she signalled her initial support for the Fed to slow the pace of its interest rate increases,” said the Financial Times (FT) while quoting the latest interview with the policymaker.

Key quotes (From Financial Times)

There’s good news on the month-to-month data that consumers and business are getting some relief, but inflation remains far too high and not near our price stability goal.

Still, ‘core’ prices — which strip out volatile items such as energy and food — climbed higher, led by an uptick in services inflation that Daly said showed little sign of moderating.

This is why we don’t want to declare victory on inflation coming down.

We’re not near done yet.

There is a lot of uncertainty, so leaping ahead with great confidence that [a 0.75 percentage point rate rise] is what we need and being prescriptive would not be optimal policy.

We have a lot of work to do. I just don’t want to do it so reactively that we find ourselves spoiling the labor market.

If we tip the economy over and [people] lose jobs, then we haven’t really made them better off.

What we need is not a good report on inflation. It’s encouraging, but it’s not evidence of the goal we really want.

Instead, Daly is looking for the data in the aggregate to affirm the Fed is ‘on a path to bring inflation down substantially and achieve our price stability target’.

FX implications

The news joins the previously hawkish comments from Minneapolis Fed President Neel Kashkari and Chicago Fed President Charles Evans to challenge the market’s mood.

Also read: S&P 500 Futures cheer US inflation miss but yields stay sluggish on Fed, China concerns