Daly sees the Fed raise rates more than 5%, but how far is unclear

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(Bloomberg) — Federal Reserve Bank of San Francisco President Mary Daly said she expects the central bank to raise interest rates to somewhere above 5% before pausing, though the final level is unclear and will depend on incoming inflation data.

As for the Fed’s next meeting at the end of the month, the central bank may raise rates by 50 basis points for the second consecutive time or slow them to a quarter-point increase, Daly said in a live-streamed interview with the Fed on Monday. Wall Street Journal.

“By doing it in more gradual steps, you have the opportunity to act on incoming information,” says Daly, who is not voting on rates this year. She stressed that it is still too early to “declare victory” over continued inflation.

The Fed slowed the pace of rate hikes at its December meeting, while emphasizing further tightening is on the way and borrowing costs are likely to remain high for some time to bring inflation back to its target of 2 % of the central bank.

Daly said last month she sees rates remaining restrictive for longer than markets see, which have priced in cuts for this year. She said keeping the federal funds rate at its peak for 11 months is a “reasonable starting point”.

Fed officials meet on January 31 and February 1 and are expected to either pass another 50 basis point rate hike or slow the pace further to a quarter of a percentage point, though traders consider the latter more likely. A report released Friday showed that hiring in the US labor market remained robust in December as wage increases cooled.

©2023 Bloomberg LP



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