San Francisco Federal Reserve President Mary Daly said further interest rate hikes are more likely than not needed to bring inflation under control, but signaled little urgency to act at the October 27–28 meeting. Speaking in an exclusive Reuters interview on Wednesday, October 14, Daly said, “We are more likely than not to need additional adjustments, but the timing of those adjustments to me is something we’re still deliberating.” With the Fed’s policy rate currently at 3.75–4.00%, she argued that policymakers have sufficient time to assess incoming economic data before deciding on further tightening. “I don’t feel urgent that we have to decide with a limited set of information,” she added, emphasizing that the likelihood of additional hikes should not be confused with the need to deliver one immediately.
Daly acknowledged that September’s stronger-than-expected CPI report increased inflation risks, but cautioned against treating those risks as sufficient justification for an immediate policy response. Headline CPI accelerated from 3.4% to 3.7% yoy, exceeding expectations of 3.6%, while core inflation rose from 2.4% to 2.6%, also above forecasts. However, Daly noted that much of the headline increase reflected higher gasoline prices, while underlying inflation, although persistent, had not accelerated sharply. “Definitely this data point suggests that the risk to inflation remains elevated,” she said. Nevertheless, she stressed that “risks are not realities,” arguing that reacting prematurely when policymakers have time to gather more evidence would be imprudent. Her assessment suggests that the latest inflation surprise strengthens the case for eventual tightening without necessarily establishing the need for an October hike.
Daly also pointed to the initial surge and subsequent moderation in October rate hike expectations as evidence that markets understand the Fed’s policy approach. Futures traders initially increased bets on an October hike sharply after CPI, before the implied probability settled around 40%, still higher than before the release but below the likelihood of a hold. Daly described the initial reaction as “robust” but noted that investors subsequently “calmed” after examining the inflation details. With employment remaining stable, she argued that the Fed has room to focus on price stability without rushing its next decision. “Why force urgency when you don’t need to have urgency?” she asked. Her position leaves the door open to further tightening while favoring a deliberate approach to timing, particularly when additional data and policy meetings remain ahead.
Key Takeaways
- Further Fed hikes remain likely: San Francisco Fed President Mary Daly said additional tightening is “more likely than not” necessary to control inflation, but emphasized that the timing remains undecided.
- No urgency for an October hike: Daly sees no need to rush into another rate increase at the October 27–28 meeting, arguing that policymakers have sufficient time to assess additional economic data.
- Inflation risks have increased, but patience is warranted: September’s stronger-than-expected CPI raised concerns, although Daly noted that gasoline drove much of the headline acceleration. She cautioned that “risks are not realities” and warned against reacting prematurely.
- Markets moderate October hike expectations: Fed futures initially swung sharply toward an October hike following CPI, before the implied probability settled around 40%. Daly viewed the adjustment as evidence that investors understand the Fed’s policy approach.
- Stable employment gives the Fed room to wait: Daly argued that labor market stability allows policymakers to focus on inflation without forcing an immediate decision. Further tightening remains possible, but she favors a deliberate approach.
