Fed’s Daly: Want to get rates to about 2.5% at least, inflation is top of mind

San Francisco Fed President and FOMC member Mary Daly said on Wednesday that she wants to march rates to about 2.5% given that inflation is at the top of her mind, reported Reuters.

The real neutral rate is about 0.5%, meaning the nominal rate is around 2.5%, Daly noted, adding that some increase in the policy rate to above the neutral rate in 2023 is likely to be required.

If inflation comes down, we might find just a little restrictive policy is just right, but if inflation moves up, we will need to be more restrictive, she noted. We are prepared to do whatever its takes to achieve price stability, Daly continued, adding that policymakers project a front-loading of rate increases.

Key Quotes:

“Balance sheet adjustments would also deliver at least another rate hike worth of tightening.”

“This is quite a bit of frontloading compared to prior cycles.”

“The data will tell us if 50bps is the right recipe.”

“I have everything on the table.”

“The data will help us determine how much is necessary.”

“The Ukraine conflict poses upside risk to inflation.”

“The conflict is a modest risk to growth, but would not deliver stagflation.”

“It’s too early to call whether we will have a global recession, but there is a very limited chance of a US recession”.