San Francisco Fed president Mary Daly said yesterday that her modal forecasts was for two to three more rate hikes over the next period. However, she also noted that “the exact timing not being certain”. She went further saying that it’s “premature” to say that a December rate hike is a “definite”. And, “we have a lot of time between now and December to see how the economy unfolds.”
Nevertheless, Daly still believed that Fed should gradually raise interest rates towards neutral. Her estimate of neutral rate is between 2.5 and 2.8%. For now, she’d “probably” pick the middle of the rate at around 2.7% as the neutral rate. She added that “gradual is helpful because it allows us to raise the rate, look around, evaluate, interpret the data and then, and only then, make another increase”. And, “the frequency and size of any increase I think is something that we want to continue to have open and not be on autopilot.” Also, she thought it’s premature to discuss whether interest rate need to go into restrictive region.
Her comments came after giving a speech titled “A Strong Economy—But We Can Aim Higher“. There she said that the current state of economy is “very good”. But “some people are getting left behind”. She said essentially all labor market indicates are “flashing bright green” and signaled the US labor market is “indeed at full employment”. The “key exception is continued low rates of labor force participation”. While monetary policy can’t directly cure the participation problem, Fed can help by “keeping the expansion going”. She also noted that there are “upside potential for US workforce participation”.
