Fed’s Daly supports rate liftoff in March, wants options open on rate path

3:03 pm Monday, January 31st, 2022

(Reuters) -The U.S. Federal Reserve should start raising interest rates from near zero in March, but should keep its options open on how far to raise them after that, San Francisco Federal Reserve Bank President Mary Daly said on Monday.

Clarifying comments she made earlier to Reuters Breakingviews, Daly said she does not know whether rates will need to be increased three times this year, as most Fed policymakers in December thought would be appropriate.

If they do rise that much, she said, “we will have tightened a lot and we will still have considerable accommodation in the system.”

But, she added, “I don’t want to predetermine what that level should be, because I really do see the two-sided risks we’re facing, and so I want to be data dependent … We have to have our options open, right? And if more is needed, more will be done. If less is needed, less will be done, but we have to have our options open.”

The Fed last week signaled its readiness to join its most serious battle with inflation in decades, beginning by raising interest rates at its next meeting, March 15-16, and signaling it could begin to trim its nearly $9 trillion balance sheet as soon as midyear.

Consumer prices jumped 7% last year, more than double the Fed’s 2% target.

“No one’s comfortable” with such high inflation, Daly said, noting that price gains are broad-based and no longer confined largely to pandemic-hit sectors.

Still, she said, “we are not behind the curve, we are not behind the curve at all.”

Wages are rising, but there is no sign of that pushing up prices in a 1970s-style wage-price spiral, she said. The challenge for the Fed, Daly said, is to remove its “extraordinary accommodation” and allow the economy to stand on its own, without removing so much that it undercuts economic growth.

“Do we need to adjust the policy rate?” Daly asked. “Absolutely.”

(Reporting by Ann Saphir and Lindsay Dunsmuir; Editing by Chizu Nomiyama, Jonathan Oatis and Nick Zieminski)