By Ann Saphir
(Reuters) – The US central bank should avoid putting the economy into an “unforced downturn” by raising interest rates too abruptly, and it’s time to start talking about slowing the pace of hikes in financial costs, the president says. San Francisco Federal Reserve Mary Daly said Friday.
The Fed is expected to raise its benchmark overnight interest rate by three-quarters of a percentage point for the fourth consecutive time at a policy meeting on November 1-2, as the central bank battles the highest inflation in 40 years. .
Aggressive policy tightening has brought that rate from near zero in March to the current range of 3.00% -3.25%.
“We could find each other, and the markets have definitely priced that, with another 75 basis point increase,” Daly said at a meeting at the University of California, Berkeley’s Fisher Center for Real Estate & Urban Economics’ Policy Advisory Board in Monterey. , California. “But I would really advise people not to take it away and think, well, I’m 75 forever.”
The Fed’s projections released last month show that most of its policymakers believe the federal funds rate will need to rise between 4.5% and 5% next year to start reducing inflation towards the target. 2% of the central bank. Those projections are still “reasonable,” Daly said, adding that she has hung them on the wall to remind herself where the badger will end up.
“I feel a lot of concern right now that we’re going to go all the time. But that’s really not how we think about politics,” Daly said.
With rates close to neutral, where economic activity is neither constrained nor stimulated, Daly said the Fed is moving into a second round of policy tightening that should be “thoughtful” and “incredibly data dependent” .
“We have to make sure we do everything in our power not to squeeze too tight, and we can’t pull up too fast and say we’re done,” Daly said. Headwinds, including the war in Ukraine, an economic slowdown in Europe, and continued tightening of policies by central banks around the world, could have an impact on the US economy, he added, and ultimately on the US economy. US rate hike.
With inflation by the Fed’s preferred measure hitting more than three times the 2% target and the labor market is still strong, Daly said “it’s really hard to step down right now … We’re not there yet. “.
But, he added, “the time has come to start talking about resigning. Now is the time to start planning for resignations.”
(Reporting by Ann Saphir; Editing by Mark Porter and Paul Simao)