Fed’s Daly says more rate hikes likely needed to fight inflation

Federal Reserve President Mary Daly stated on Thursday that the central bank will likely need to raise interest rates further to tackle persistently high inflation. Daly, speaking at the Stanford Institute for Economic Policy Research, indicated there is no rush to act but stressed the need for additional tightening. She noted that inflation pressures are spilling over from energy and goods into services, where inflation is typically more stubborn.

Daly welcomed higher bond yields and tighter financial conditions, stating they afford the Fed "a little more time to make really calibrated decisions." She also downplayed AI's role in inflation, suggesting it has a limited impact on the labor market. Daly pointed to positive signs for productivity growth, indicating more gains might emerge within the next one to three years.

Despite the current economic backdrop of a stable labor market, solid growth, and productivity gains, Daly emphasized the necessity of bringing inflation under control. She cautioned against complacency, warning that inflation shocks can compound once they become entrenched, particularly in services. Daly noted that financial markets have aligned with the Fed's policy direction, and the exact timing and size of future rate hikes do not need to be determined immediately.

She described the present situation as a "perfect storm for hiring," citing AI, uncertainty, and rising input costs as factors that dampen hiring activity.