San Francisco Fed President Mary Daly said Thursday that she sees the case for quickly moving to raise interest rates this year as inflation remains high.
“I like to think of it as expeditiously marching towards neutral. It’s clear the economy doesn’t need the accommodation we’re providing,” Daly told Yahoo Finance in an exclusive interview Thursday.
The Fed hopes that raising borrowing costs will dampen the consumption and spending that has pushed prices higher.
The central banker told Yahoo Finance that she will support raising the target federal funds rate by 0.50% at the conclusion of the next policy-setting meeting on May 4. The Fed has not moved to raise interest rates in increments larger than 0.25% since 2000, underscoring the need for aggressive action to quell the rapid pace of price increases.
Daly said she could would like to see the Fed lift the short-term rate to somewhere between 2.25% to 2.5% by the end of the year — far from the current target range of 0.25% to 0.50%.
In March, prices in America (as measured in the Consumer Price Index) soared by 8.5% on a year-over-year basis. Among the most rapidly inflating categories: gasoline, airline fares, and rental cars.
Daly said that the high reading for March is very likely reflective of supply disruptions linked to the Russian invasion of Ukraine. Wheat exports from Ukraine have driven food prices higher, and Western sanctions have essentially disconnected Russian energy and metals from the global economy.
The San Francisco Fed President said it is too early to say what inflationary readings in the U.S. will look like in months to come.
“I think it’s a fraught-with-peril exercise to forecast the peak in inflation,” Daly said. She pointed to economic shutdowns amid China’s zero-COVID.
The challenge for the Fed: raising rates high enough to tamp down on inflation but not high enough to tilt the economy into a recession.
“There isn’t a sign that the economy is going to tip into recession simply because we’re removing accommodation. It’s demonstrated they can self-sustain,” Daly said of the risk of recession.
The Fed’s next policy-setting meeting is scheduled for May 3 and 4.
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.
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