In an interview with Yahoo Finance, San Francisco Fed President Mary Daly said the latest CPI report, and specifically the core inflation reading, which came in at a 40-year high, has left her expecting the Fed to continue its hawkish policy as it struggles to contain inflation.
Daly said, “It does show the data not cooperating. It was a very disappointing report, but I would offer it wasn’t that surprising. We would hope that inflation would start to come down faster, but I was prepared for it to just be sluggish.”
However she did acknowledge not all the data the Fed is looking at is bad. In noting CPI was a lagging indicator, she pointed out it was just one data point the Fed examines, and the others were more optimistic. Housing is definitely softening, and the jobs report showed some signs of cooling. In addition, she noted that retail sales for September showed spending was flat. All are signs of a cooling economy.
She added, “It’s really another sign that we’re getting some cooling and that will eventually feed through to inflation.”
She concluded that raising the benchmark rate to between 4.5% and 5% next year, with it rising above 4% this year was a “reasonable” expectation.
She said, “There’s literally no doubt in my mind that we need to put a more restrictive stance of policy in the economy to further get demand and supply in balance.”
However she added, the Fed’s course is not pre-set, and it would adapt to conditions, saying, “We are a data-dependent Fed, and if more is necessary, we’ll take it. If less is necessary, we’ll adjust. But we’re not talking about, at this point… pausing or stopping, nor are we talking about changing our overall strategy, because the data are coming in about like we would expect.”
Daly emphasized that her constituents are not all that worried about a recession when she talks with them. Most, she says are having problems finding workers, and complaining about how stubborn the high inflation is. Mostly, she said they expect a shallow and short-lived economic slowdown.
Daly said, “That’s a very different landing. That would, in my mind, is the soft landing we’re trying to achieve.”
