Fed’s Daly: US has a typical recipe for inflation

San Fransisco Fed President Mary Daly said on Tuesday that the US now has policy-supported demand combined with fragile supply chains, which is a recipe for inflation.

Key Quotes On Monetary Policy

“It’s time to remove accommodation, marching up to neutral, looking if we need to go over neutral.”

“Right now full employment seems to be met, the labor market is extraordinarily tight and inflation is too high.”

“It’s time to tighten policy in the United States, despite uncertainty with Ukraine and Covid.”

On Financial Markets

“The yield on 10-year treasury is low for understandable factors, including safe-haven buying.”

“Markets also don’t expect runaway inflation.”

On Inflation, Supply Chains, US Economy

“Inflation is too high, and added to that you have two supply chain shocks further pushing up on inflation.”

“Oil supply shocks can limit growth, but we are in a different situation than in the 1970s.”

“Uncertainty is an issue as this war proceeds.”

“The main risk I see is inflation pressures, which are more than we want, need, or thought 3 months ago.”

“The pandemic in many ways is the ‘culprit’ behind high inflation.”

“Going forward, I expect some of this to roll off, helping get supply and demand back in balance.”

“Supply chains will hopefully repair as well.”

“I shaved a little off my own growth forecast, I now see it at about trend.”

“At-trend growth of about 2%, against all these headwinds, is really quite remarkable.”

“I expect the Fed’s policy adjustment and other factors to bring inflation down.”

“I don’t think we’ll be at 2% inflation by end of year.”

“I don’t have a new-found fear that we’ve lost inflation anchor.”

“I see well-anchored inflation expectations.”

“I do have a concern that when inflation stays higher for longer, that ‘tugs’ at the inflation anchor.”

Mary Daly also said she believes the “main risk” to the economy is from too-high inflation that could get worse as Russia’s invasion of Ukraine boosts oil prices and China’s crackdown on COVID-19 further disrupt supply chains.

“It’s time to remove accommodation,” Daly said at a virtual Brookings Institution event, “marching” rates upward to and perhaps above a neutral level to rein in inflation and more strongly anchor inflation expectations. “I’m already focused on let’s make sure this doesn’t get embedded and we see those longer-term inflation expectations drift up”.