Interest rates

Fed’s Daly: inflation “problematic”, interest rates on the rise

Oct 5 (Reuters) – San Francisco Federal Reserve Board Chair Mary Daly on Wednesday underlined the U.S. central bank’s commitment to curb inflation with further interest rate hikes, although she said that the Fed wouldn’t just go ahead if the economy started to crack.

“We’re definitely not raising rates until something breaks; we’re actually looking to the future,” Daly told Bloomberg TV in an interview, adding that policymakers aren’t just relying on on models, but collect information from business and community leaders to shape their policies. . “You’re constantly calibrating through this reliance on data for the risks ‘of not doing enough to slow the economy, or doing too much.

Right now, she says, the economy is working well, and so are the markets.

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“We still have lender of last resort responsibilities, and if a market dislocation were to occur, we would be prepared to use that, but that’s not what I see right now,” she said. declared.

What the Fed sees, she says, is that “inflation is problematic, and we are committed to restoring price stability” by raising rates to limit demand for goods, services and labor. work that fuels inflation.

The Fed is expected to make a fourth straight rate hike of 75 basis points at its meeting early next month as it tightens monetary policy more aggressively than it has since the 1980s. to ease price pressures that have remained higher for longer than policymakers. expected.

Global equity markets swirled as investors try to calibrate when the Fed’s rate hikes may end. Policymakers like Daly have stuck to their message that the tightening will only end when inflation subsides.

U.S. stocks lost ground on Wednesday as new economic data showed hiring in the services sector accelerating despite rising borrowing costs.

CLEAR PATH

The Fed’s benchmark overnight interest rate is currently in the 3.00% to 3.25% range, and policymakers have indicated they expect it to rise further to 4.6% next year as they tackle inflation which, using the Fed’s preferred measure, is more than three times the central bank’s 2% target.

Daly said she hopes the US Department of Labor’s jobs report for September, due out on Friday, will confirm the start of a slowdown in hiring that her business contacts have cited. Data earlier this week showed companies in August posted significantly fewer job openings, a trend she said her contacts had started telling her about months earlier.

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Daly also hopes next week’s release of the monthly report on the Consumer Price Index, the most widely followed gauge of US inflation, will show that underlying price pressures are stabilizing or easing.

These data points, she said, will inform her own decision on the pace of Fed rate hikes.

But overall, she pointed out, “the path has been very clear: we’re going to raise the rate until we get into restrictive territory, and then we’re going to keep it there” until the inflation is coming back down closer to 2%.

Daly said she doesn’t expect that to happen until 2024.

“It’s really the idea that you’ve been holding for a while so that we can see inflation come down, and our trajectory hasn’t really changed; we haven’t pivoted on that and we’re determined to restore price stability,” she added. said. “We are in a vulnerable position when we have high inflation.”

On Wednesday, however, traders in short-term interest rate futures were betting that the Fed would start easing policy again before the end of next year.

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Reporting by Ann Saphir; Editing by Chizu Nomiyama and Paul Simao

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