San Francisco Fed President Mary Daly said Friday, echoing other policymakers, that she expects the central bank will need to raise rates further, but that the pace and timing remain uncertain.
“We do expect that we will need to tighten policy further. Exactly when and how much tightening is still to be determined because we have to consider all the variables that come in,” Daly said in a live interview with CNBC’s Steve Reisman. “Further additions are likely to be necessary and certainly…if the economy requires it, I am prepared to do so.”
The remarks came on the same day the U.S. Bureau of Labor Statistics reported that the U.S. economy added 165,000 jobs in October and that the unemployment rate, the most important labor market variable for Fed officials, fell slightly to 4.1%.
These numbers were significantly higher than Wall Street expected. In fact, job creation was nearly three times higher than the Dow Jones consensus estimate.
The Daily called the report “good news for American workers,” but noted the pressure inflation is putting on household finances. Average hourly wages rose at an annualized rate of 3.1% in October, while inflation, as measured by the consumer price index, was 3.7% in September.
“They know they can get a job, so they keep spending. They’re not out of the game, but they’re on the springboard of high inflation,” she said. “This has been at a high level for a very long time, almost six years, and we’re really starting to feel the strain of that spread everywhere.”
The policymaker said he was not concerned about economic growth overall, but was concerned about sustained inflation.
“The job market remains stable and strong, but it’s not booming. Real wages are falling because they haven’t kept up with inflation,” Daly said. “I think that’s the crux of this issue. It’s good news on the employment front, but it’s not so clear whether Americans will establish themselves in the labor market.”
The Federal Open Market Committee, which decides interest rates for September, raised the central bank’s benchmark overnight borrowing rate by a quarter of a percentage point to a target range of 3.75% to 4%.
But the committee last week declined to follow up this rate hike with any other action, saying it wanted to wait for “further information to accumulate” before deciding on next steps.
Daley said he plans to vote in committee next year but still supports a phased approach. Richmond Fed President Thomas Barkin also said Thursday that he expects future interest rate hikes, but the timing is uncertain.
“I was really supportive and completely thought it was the right decision to move in September,” Daly said. “The world is full of uncertainty, so I think it was a good thing that we put it on hold at the last meeting.”
