Federal Reserve Bank of San Francisco President Mary Daly said the US central bank will likely need to raise interest rates a couple more times to return inflation to its goal.
(Bloomberg) — Federal Reserve Bank of San Francisco President Mary Daly said the US central bank will likely need to raise interest rates a couple more times to return inflation to its goal.
“We’re likely to need a couple more rate hikes over the course of this year to really bring inflation back into a path that’s along a sustainable 2% path,” she said Monday at the Brookings Institution in Washington.
She emphasized that she is open to changing her outlook depending on incoming economic data, which has been surprisingly strong this year.
Fed officials kept interest rates unchanged at 5% to 5.25% last month as they sought to assess how the economy was performing after 10 consecutive increases to fight inflation.
Most officials see the US economy staying resilient enough to avoid a recession so far despite the March banking turmoil, while the persistently strong labor market adds to their concerns over how much longer it would take to bring inflation to the 2% target.
Minutes of the Fed’s June meeting released last week showed almost all officials considered more hikes as appropriate to keep the pressure on prices. Chair Jerome Powell said last month he wasn’t ruling out two consecutive hikes this year.
Daly said the risks of doing too little to curb inflation still outweigh the risks of doing too much, though the gap between those two is narrowing. The San Francisco Fed chief said she is starting to see signs of the economy slowing, and added that supply and demand are coming into better balance.
Core inflation remains a concern for the Fed. While the personal consumption expenditures price index rose in May at the slowest annual pace in more than two years, PCE minus food and energy climbed an annual 4.6% in May, suggesting underlying inflation remains sticky.
“Inflation is our No. 1 problem,” Daly said.
Fed officials will Wednesday receive readings on consumer prices for June, a key indicator to monitor as they prepare for a rate decision during their meetings on July 25 and 26.
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