Daly: High inflation has persisted for too long, the Federal Reserve may need to raise interest rates further

According to Zhithong Caijing APP, Mary Daly, the 2027 FOMC voting member and President of the Federal Reserve Bank of San Francisco, stated on Friday that she expects the Federal Reserve will need to raise interest rates further, but like other policymakers, she believes the pace and timing of hikes remain uncertain. Daly said: “My expectation is that we will have to tighten policy further. When and by how much are still to be decided, as we must consider all relevant factors.” She added: “More tightening may be necessary, and certainly… if the economic situation requires it, I am prepared to do so.”

Daly's comments continued the recent cautious tone from Federal Reserve officials: on one hand acknowledging that further tightening may be necessary, while on the other emphasizing that future decisions will depend on economic data.

On the same day Daly made these remarks, the US Bureau of Labor Statistics reported that the US economy added 165,000 jobs in October, and the unemployment rate fell to 4.1%. The unemployment rate is the labor market variable most closely watched by Federal Reserve officials. These data far exceeded Wall Street expectations. Notably, the number of new jobs created was almost three times the consensus estimate from the Dow Jones survey.

Daly said this report was “good news for American workers” but also noted that inflation is putting pressure on household finances. Data also showed that in October, average hourly earnings rose 3.1% year-on-year; and as measured by the Consumer Price Index (CPI), the inflation rate in September was 3.7%.

“They see that they can find jobs, so they continue to spend. They have not left the labor market, but are still treading water under the pressure of high inflation.” She commented: “High inflation has lasted too long—almost six years—and we are really starting to feel this burden spreading everywhere.”

Daly said she is not generally concerned about economic growth, but is worried about the persistence of inflation. She said: “The job market remains stable and solid, but not booming—you see real wages declining, because those wages haven’t truly kept up with inflation.” She added: “I think that’s crucial. The employment situation is good news, but it’s not so clear whether Americans will make substantive gains in the labor market.”

The Federal Open Market Committee (FOMC), which sets interest rates, raised the Federal Reserve’s benchmark overnight borrowing rate by 25 basis points in September to a target range of 3.75%-4%. However, the committee did not follow up with another rate hike last week, stating that it prefers to wait for “more information” before deciding on its next move.

Daly will participate in committee voting next year and stated that she still prefers to take an incremental approach. Richmond Fed President Thomas Barkin said on Thursday that he also expects rates to be higher in the future, but is uncertain about the timeline.

Daly said: “I strongly support, and fully believe it was right to act in September. I also think it was a good thing to stand pat at the last meeting, because the world is full of uncertainty.”