(Bloomberg) -- The Federal Reserve should tighten policy until inflation begins trending down toward its 2% goal, San Francisco Federal Reserve Bank President Mary Daly said, adding officials should remain data-dependent and temper rate increases once price growth moderates.
“I certainly am comfortable to do what it takes to get inflation trending down to the level we need it to be,” Daly said Wednesday in an interview on CNBC. “What the Fed needs to do -- and this is how I am thinking about the economy -- is remove the accommodation, but then be open to the data, be data-dependent.’
Daly said she supports 50-basis-point rate increases at the central bank’s June and July meetings, but doesn’t want to forecast policy moves beyond that. She favors pushing the fed funds rate to neutral, which she estimates around 2.5%, by the end of the year. Daly does not vote on policy this year.
The Fed raised rates by half a percentage point at its May meeting and signaled it’ll do so again at the next two meetings. Chair Jerome Powell said May 17 the central bank will keep raising rates until there is “clear and convincing” evidence that inflation is slowing down.
“I would think we just move the rate until we find ourselves at least at neutral and then we look around and see what else needs to be done,” Daly said.
It may be appropriate for monetary policy to actually restrain the US economy, Daly said, but it’s too early to make that decision. Factors including the reopening of China’s economy, the war in Ukraine and the supply-and-demand imbalance domestically are all still fluid situations affecting growth and prices.
“I’m looking for both supply to recover somewhat and demand to come back down a little bit,” Daly said. “If neither of those things cooperate then we need to go into restrictive territory.”
Daly said she hopes the inflation rate, which at 8.3% in April was near a 40-year high, has peaked, though it’s too early to declare victory. She has heard some optimistic comments from businesses in her district which have reported a slowdown in workers asking for higher wages.
Policy makers are watching financial conditions as they begin shrinking their balance sheet Wednesday. Daly equated the balance-sheet runoff to a 25- or 50-basis-point rate increase.
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