The Fed’s Mary Daly Says Rate Hikes Should Continue Until Inflation Is Tame

• San Francisco’s Federal Reserve President Mary Daly stated on June 1 that she supports raising interest rates aggressively until inflation comes down to a reasonable level. Those moves likely would entail multiple 50 basis point hikes at coming meetings, then a possible rest to see how the central bank policy tightening is combining with other factors to impact the massive surge in consumer prices. 
• Daly said she sees some initial signs of a slowing economy and reduced inflation, but will need to see much more progress before the Fed can slow its efforts. “We aren’t really there yet, so we need to see those data on a slowing economy bringing demand and supply back in balance, and I need to see some real progress on inflation,” she said. 
• Multiple officials have said the 50 basis point moves are likely to continue. Though inflation measures such as the consumer price index and Fed’s preferred core personal consumption expenditures have come off their recent highs, they are still near levels last seen in the early 1980s. 
• Most Fed officials estimate the “neutral” level of their benchmark borrowing rate to be around 2.5%. It currently is targeted in a range between 0.75% and 1%. Daly said issues such as supply chain backlogs, the war in Ukraine, and the China economic reopening after a COVID-related shutdown will be factored into whether inflation has peaked. If inflation should persist or become progressively worse then she suggests that the Central Bank go into restrictive territory with the benchmark increases.

(Source: CNBC)