Mary Daly, President of the Federal Reserve Bank of San Francisco, has indicated that further interest rate hikes may be on the horizon as the central bank continues its fight against inflation. In a Financial Times interview today, Daly warned of possible increases in the Federal Reserve's current interest rate cycle, suggesting that policymakers are considering raising the terminal rate to 5.6 percent from the present range of 5.25 to 5.5 percent.
This statement comes as financial markets have been speculating about a potential end to the Fed's rate hikes after a year-long decrease in both headline and core inflation. Despite these market expectations, Daly, along with Fed Chair Jerome Powell, stressed the importance of carefully examining broader financial conditions before reaching any definitive conclusions about the future path of monetary policy.
Daly acknowledged the recent "very encouraging" inflation data but maintained a cautious stance towards future rate adjustments. She highlighted concerns over a 'stop-start' pattern which could emerge from an insufficient understanding of the disinflationary process. While she downplayed worries about a severe economic downturn following a sharp fall in yields, she also made it clear that rate cuts are not imminent. Her comments come at a time when market sentiment appears to diverge from the Fed's perspective, with traders pricing in zero chance of a Federal Reserve hike.
The Federal Reserve has been on a campaign to tame inflation through a series of aggressive rate increases over the past year. The central bank's actions have been closely watched by investors and economists alike, as they balance the need to curb inflation with the risk of triggering an economic slowdown. Daly's recent remarks underscore the delicate act of managing monetary policy amid shifting economic indicators and market expectations.
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