Fed’s Daly says further rate hikes likely needed to curb inflation

Federal Reserve Bank of San Francisco President Mary Daly stated on Friday that the US central bank is likely to raise interest rates further to combat persistently high inflation levels. During a CNBC interview, Daly hinted that the precise timing and extent of the rate hikes remain uncertain. She emphasized the need to account for ongoing volatility in various sectors and suggested a more gradual approach to policy adjustments until the appropriate course is clear.

Daly emphasized that high inflation has been a prolonged issue and should be the central bank's primary concern. She highlighted the strong labor market as providing the Federal Reserve with the flexibility to prioritize inflation control. Daly found the recent jobs report to be positive, but noted that wage growth has not been robust and real wages are declining. She expressed a desire to witness increased confidence regarding inflation.

The San Francisco Fed chief acknowledged that the September rate hike was the correct decision, while also stating that maintaining current interest rates at the most recent meeting was appropriate. Daly indicated that she is ready to increase rates if necessary conditions arise. Regarding technology stocks, Daly described the revaluation of AI-related investments as "painful but orderly so far."

She suggested that if the AI repricing signals a slowdown in demand, growth might experience a slight decline, although she does not foresee a significant drop in growth.

Daly indicated that businesses are hoping for a reduction in inflation and remain cautiously optimistic about the economic outlook. She noted that, despite the market volatility, the ongoing adjustment process represents the kind of necessary rebalancing that one would anticipate.