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The Fed: Fed’s Daly backs more aggressive pace of rate hikes given the inflation outlook

San Francisco Fed President Mary Daly said Wednesday she now supports more steady rate hikes rather than gradual moves given the inflation outlook.

“I do think that having a little more urgency to move interest rates up to a level that’s in line with what the economy needs today is important,” Daly said, in comments to the Los Angeles World Affairs Council and to reporters afterwards.

Earlier this year, Daly had backed “gradual” rate hikes — one quarter-point rate hike per quarter with no move to shrink the balance sheet until “later” in the year.

But that pace “doesn’t satisfy the moment” any longer, Daly said.

Instead, Daly said she now supports a faster pace of interest-rate adjustments.

Barring surprises, Daly said she supports lifting off in March, using subsequent meetings to adjust the rate higher and starting to shrink the balance sheet earlier in the year, instead of delaying it until later. The balance sheet move could come after two or three rate hikes, she said.

A 50-basis-point rate hike in March is still not her base case forecast, but she didn’t close the door completely on it.

After starting to reduce the balance sheet, the Fed may make subsequent moves as needed of either 25 basis points or 50 basis points, Daly said.

Daly said she adjusted her views based mainly on conversations with business contacts in her district.

“I’m hearing that the pressures on inflation are not resolving at the speed that I had hoped that they would,” Daly said.

In addition, the latest consumer price inflation report showed that inflation is moving beyond the sectors disrupted by COVID-19.

In addition, as the economy reopens and the omicron variant subsides, “people are running outside.” That is putting even more pressure on supply and demand, she said, “so we need to get the rate up.”

Stocks
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were down sharply Wednesday as tension between Russia and the West over Ukraine ratcheted higher.

Daly said she didn’t think the Ukraine crisis would delay the Fed’s liftoff in March.

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