The head of Fed Daly talks about the impact of interest rate hikes on the economy
2022.11.21 13:41
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The head of Fed Daly talks about the impact of interest rate hikes on the economy
Budrigannews.com – Mary Daly, president of the San Francisco Federal Reserve, stated on Monday that the U.S. central bank’s interest rate hikes are likely to have a greater real-world impact than the short-term rate target suggests.
Daly stated that some researchers have discovered that “the level of financial tightening in the economy is much higher than what the (federal) funds rate tells us.” This contrasts with the Fed’s current short-term target rate of between 3.75 percent and 4.00%.She went on to say that “financial markets are acting like it is around 6%” when compared to the current target rate.
Daly stated, “It will be important to remain conscious of this gap between the federal funds rate and the tightening in financial markets.” This is because markets have priced in a monetary policy setting that is significantly higher than what the Fed has imposed on the economy thus far.It increases the likelihood of excessive tightening if ignored.”
However, Daly stated in prepared remarks for an address to the Orange County Business Council in California that the Fed’s policy rate is currently in “modestly restrictive” territory and that “there is more work to do” to get monetary policy in the right place to cool inflation.
The Federal Open Market Committee – which sets rates – will almost certainly raise its policy rate next month; the only question is by how much. At the moment, the chief of the San Francisco Fed does not have the right to vote on the committee.
Daly offered his opinion at a time when Fed officials have been insisting on further rate increases with the intention of lowering inflation to its highest level in 40 years. From a level that was close to zero in March, the central bank has increased its short-term goal.
In September’s economic projections, Fed policymakers predicted a mid-4% target rate for next year.But since then, a lot of officials have said that, given how inflation is doing and how strong the job market is still, they might want to go higher than that.According to Daly, it could go as high as 5.25 percent.
However, officials are also aware that going too far with rate hikes and tightening policy too quickly could hurt the economy too much. As they get closer to a point where the policy rate will stay the same for a while, some have debated reducing the size of individual rate hikes.Officials have some leeway to believe they can moderate the rate hikes thanks to recent data that suggests that inflation may be decreasing.
Daly expressed the following stage for the Fed will be “in numerous ways more troublesome.”She went on to say that officials will have to be “mindful” of the choices they make and that “adjusting too little will leave inflation too high.”Over-adjustment may result in an unnecessary downturn that is painful.
According to Daly, there are indications that the Fed is moving in the right direction, citing the decline in job openings and moderate job growth as signs of an essential economic slowdown.”The most recent inflation report had some encouraging numbers, including a long-awaited decline in goods price inflation,” she added, “although one month of data does not make a victory.”
