Fed's Daly says rate hikes likely needed, but not urgently

Federal Reserve President Mary Daly indicated on Wednesday that the central bank is likely to raise short-term interest rates again to combat high inflation, but stressed there was no urgency to do so at their upcoming meeting on October 27-28. Daly told Reuters in an exclusive interview that she does not feel compelled to decide on rate adjustments with limited information and believes the bank has the necessary time to deliberate.

The current policy rate at the Fed sits between 3.75 per cent and four per cent, while longer-term borrowing costs remain elevated, impacting demand in certain sectors of the economy.

Daly noted that financial markets have grasped the Fed's approach, as evidenced by traders reacting favorably to recent data showing consumer price inflation accelerating to 3.7 per cent in the 12 months through September, slightly higher than expected. The Federal Reserve aims for a 2 per cent inflation rate based on a different, related metric.

While the market's initial response was strong, Daly explained that investors have since tempered their expectations after analyzing the data. Higher gasoline prices contributed to the overall inflation increase, with underlying inflation remaining stubbornly high.

Daly emphasized that the elevated inflation risk persists, but warned against reacting solely to risk when ample time exists to make well-informed decisions. She highlighted the stable labor market as a positive factor for the Fed, focusing on price stability. Daly questioned the need for urgency, urging the central bank to exercise thoughtfulness and deliberation before acting.

The Fed still has several meetings ahead, and Daly reassured that policymakers are committed to achieving price stability and are prepared to take appropriate measures to achieve this objective.