Mary Daly backs steady rate hikes despite inflation outlook

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Mary Daly backs steady rate hikes despite inflation outlook

San Francisco Fed President Mary Daly said on Wednesday she supports steady rate hikes rather than gradual moves given the inflation outlook.

In comments to the Los Angeles World Affairs Council and to reporters afterwards, I think it is important to have a little more urgency to move interest rates up to a level that the economy needs today.

Earlier this year, Daly had backed gradual rate hikes — one quarter-point rate hike per quarter with no move to shrink the balance sheet until later in the year.

That pace doesn't satisfy the moment any longer, Daly said.

Daly said she supports a faster pace of interest-rate adjustments.

Daly supports lifting off in March, using subsequent meetings to adjust the rate higher and beginning to shrink the balance sheet earlier in the year, instead of delaying it until later in the year. She said that the balance sheet move could come after two or three rate hikes.

A 50 basis point rate hike in March is still not her base case forecast, but she didn't close the door completely on it.

The Fed can make subsequent moves as needed of 25 basis points or 50 basis points after starting to reduce the balance sheet, Daly said.

Daly said she adjusted her views based on conversations with business contacts in her district.

I am hearing that the pressures on inflation are not resolving at the speed I had hoped that they would, Daly said.

People are running outside as the economy reopens and the omicron variant subsides. She said that's putting more pressure on supply and demand, so we need to get the rate up. The DJIA, SPX, was down sharply Wednesday as tension between Russia and the West over Ukraine ratcheted higher.

Daly said she didn't think the Ukraine crisis would delay the Fed's liftoff in March.