The Fed is sticking to its plan to curb inflation with more interest rate hikes, and the current situation does not warrant such a move, according to Mary Daly, San Francisco Federal ReserveFederal Reserve President, who said on Wednesday that the central bank would step in if markets stopped functioning properly.
In an interview, Daly said that policymakers don't rely on models, but instead collect information from business and community leaders to shape their policies. You are constantly calibrating through the data dependence to risks of not doing enough to slow the economy, or doing too much.
She said that the economy is working well and markets are functioning.
She said that we always have the lender-of-last-resort responsibilities, and if market dislocation happens, we would be prepared to use that, but that's not what I'm seeing right now.
The Fed believes that inflation is problematic, and we are committed to restoring price stability by raising rates further.
The Fed is expected to deliver a fourth straight 75 basis-point rate hike when it meets early next month, as it tightens monetary policy more aggressively than it has done since the 1980s to help pressures that have stayed higher for longer than policymakers had expected.
Global stock markets have gyrated as investors try to calibrate when the Fed's rate hikes could end, and policymakers like Daly have stuck firmly to their message that the tightening will only end when inflation comes down.
U.S. equities lost ground on Wednesday as new economic data showed that hiring in the services sector went up despite the rise in borrowing costs.
The overnight interest rate of the Fed is currently in the 3.00% - 3.25% range, and policymakers have signaled that they expect it to rise further to 4.6% next year as they address inflation that is more than three times the central bank's 2% target when using the Fed's preferred measure.
Daly hopes that the U.S. Labor Department's jobs report for September, due to be released on Friday, will confirm the start of a hiring slowdown that her business contacts have cited. She hopes that the consumer price index will be released next week, the most widely followed gauge of U.S. inflation, showing price pressures either stabilizing or falling.
She said that data points will inform her decision as to the pace of the Fed's rate hikes.
She said that the path has been very clear: We are going to raise the rate until we get into restrictive territory, and then we are going to hold it there until inflation comes down closer to 2%.
Daly said she did not expect that to happen until 2024.
She said that it's the idea that you hold for a long time so that inflation can come back down, and our path hasn't really changed; we haven't pivoted on that and we're resolute at restoring price stability. When we have high inflation, we're in a vulnerable position.