The Federal Reserve's hawkish stance is rapidly intensifying! Daly: Further rate hikes are needed to curb inflation, as companies are preparing to raise prices and pass on costs.

According to Zhihui Finance APP, San Francisco Fed President Mary Daly stated that in order to further bring down inflation, the Federal Reserve will most likely need to raise rates further—she also revealed that more and more businesses are considering price increases.

“My inclination is that further tightening of policy is needed, because you can see inflationary pressures are persistent and no longer confined to areas most directly affected by tariffs or oil prices,” Daly said Thursday at an event hosted by the Stanford Institute for Economic Policy Research (SIEPR) in California.

She stated that she is hearing from more and more businesses that they will need to pass higher input costs on to consumers.

The Federal Reserve completed its first rate hike since 2023 in September in an effort to cool inflation, which has remained above its 2% target for over five consecutive years; at the October meeting, policymakers chose to keep rates unchanged. Daly is not a voting member of monetary policy this year, but she reiterated her support for both decisions.

Hawkish voices intensify

On the same day, Chicago Fed President Austan Goolsbee, Cleveland Fed President Beth Hammack, and Kansas City Fed President Jeff Schmid also voiced their concerns over stubborn inflation.

“My expectation is that we will need to shift policy to a restrictive stance to help bring inflation down,” Hammack said at an event in Columbus, Ohio.

Goolsbee offered a new perspective in a Yahoo Finance program: the current boom in building AI infrastructure may be overheating economic demand, which will make it “even harder” for the Federal Reserve to bring down inflation.

Recent data show price pressures have risen in a wide range of categories—not just those directly linked to tariffs and energy costs—further intensifying concerns among policymakers.

Several policymakers have recently voiced support for a rate hike at the upcoming December meeting. Among them, Board member Christopher Waller suggested that the Federal Reserve should consider a rate hike of 50 basis points, larger than usual; Dallas Fed President Lorie Logan said that more frequent rate hikes may be needed this winter.

Hammack said Thursday that if officials fall behind in the fight against inflation, more aggressive measures could be considered—but she does not think that is necessary at this moment.

Futures markets are currently pricing in a 25-basis-point hike at each of the next three meetings—December, January, and March.

Daly on AI: Certainly pushing up prices, but not yet the main driver of inflation

Daly also discussed the impact and outlook for artificial intelligence. She noted that AI infrastructure is “undoubtedly” adding to price pressures, but since the overall increase in costs is modest and has not spilled over into other sectors, its current impact on overall inflation is limited.

“This actually shows that current overall inflation is being driven by other variables, not AI goods,” Daly said.

She also reiterated her optimism about AI boosting productivity growth, but said it is still too early to predict when all this will materialize.