San Francisco Fed President Mary Daly said Friday that further interest-rate increases are likely to be needed to bring inflation under control, though policymakers have not decided when to act or how much to raise rates. She warned that high prices continue to erode household finances even as the labor market remains solid.
Jobs remain a source of strength
The Bureau of Labor Statistics reported that the US added 165,000 jobs in October and the unemployment rate edged down to 4.1%. Both figures were stronger than Wall Street had expected: job creation was nearly triple the Dow Jones consensus estimate.
Daly described the employment report as good news for workers, but said a stable labor market does not mean households are gaining ground. Average hourly earnings rose 3.1% over the year in October, while the September consumer price index showed inflation of 3.7%. Those measures cover different periods, but together illustrate the pressure prices can put on pay.
She said workers are still finding jobs and continuing to spend, yet many are struggling to keep up with rising costs. In Daly’s assessment, wages are not matching inflation, leaving real wages falling despite continued employment.
Inflation is the central concern
Daly said she was not broadly worried about economic growth. Her concern is that inflation has stayed high for too long and its effects are spreading through household budgets. She described Americans as working and spending while remaining caught in a cycle in which rising prices eat into what their pay can buy.
The persistence of inflation is the reason Daly believes more tightening may be required. She said she was prepared to support further action if the economy calls for it, while stressing that the decision depends on incoming information. Her position is not a commitment to a particular increase at a particular meeting.
The Fed has paused after a September increase
In September, the Federal Open Market Committee raised its benchmark overnight borrowing rate by a quarter percentage point, setting a target range of 3.75% to 4%. At its following meeting, the committee left rates unchanged and said it wanted to assess more information before choosing its next step.
Daly backed both decisions. She supported the September increase and said holding rates at the subsequent meeting was also appropriate amid uncertainty. She has said she prefers a gradual approach, balancing the need to bring inflation down against the risk of acting before the economic picture is clearer.
The pause does not rule out another increase. Daly’s message is that rates may need to rise further, but the timing and size depend on how the economy develops.
What policymakers are watching
The October employment figures give the Fed evidence that the labor market remains resilient. Daly said that strength allows policymakers to focus on inflation, while the relationship between wage growth and prices remains a concern for workers’ purchasing power.
Richmond Fed President Thomas Barkin has also said he expects rates to rise further, though he is uncertain about the timing. The next decision will depend on the information policymakers receive and their assessment of whether inflation is easing enough to avoid additional tightening.
Sources
- qz.com — “San Francisco Fed's Mary Daly said more rate hikes likely needed”
- Bloomberg — “Fed’s Daly Supported Rate Decision, Warns of Inflation Risks”
- actionforex.com — “Fed's Hammack Warns Inflation Expectations Could Force More Aggressive Rate Hikes – ActionForex”
- finance.yahoo.com — “Fed's Barr says more rate hikes are needed to bring down inflation”