To combat inflation and its ensuing price increases, San Francisco Fed President Mary Daly declared Saturday that the Federal Reserve should raise interest rates significantly and maintain them at those levels for extended periods of time. “It’s very evident that we need to take further action,” asserted Daly in her speech delivered at Princeton University. “For us to put this bout of high inflation behind us, it is essential that our policy tightening be augmented – staying there longer than before.”
Fed Thinks Rate Increases Are Successful in Fighting Inflation
Daly admitted that the current surge in inflation and the Fed’s forceful plans to bring it under control has resulted in widespread fear across both Wall Street and Main Street. “The responses range from worrying these steps will drag our economy into a recession to being anxious they won’t be enough,” she declared.
Daly noted that investors are often overwhelmed with fear when new economic data is released, and in their haste to seek out answers, they overlook the long-term effects of such information. The current Fed strategy for dealing with acute inflation levels across various sectors, including housing and goods, has been an appropriate method given these stable yet high price readings. Despite her questions about the disinflationary momentum present in the market today, she remains confident that this course will prove successful over time.
Even though Daly does not have a vote in Federal Open Market Committee decisions, she is still an integral part of the policy-making process by attending meetings and contributing her opinions.
Fed Chairs Insist on Rate Increases
In the wake of cautions issued by the Federal Reserve, Neel Kashkari, Minneapolis President of the Fed, declared his openness to a rate hike at March’s policy meeting. He proposed that it could be either 25 or 50 basis points (corresponding to 0.25% or 0.50%).
On Wednesday, President of the Atlanta Fed, Raphael Bostic, asserted that the Federal Reserve must raise their policy rate by a full half-percentage point at their next meeting. Then on Thursday, Christopher Waller – Governor of the Federal Reserve – also indicated that higher interest rates than anticipated may go into effect due to an abundance of recently reported economic data being more robust than predicted.
Despite Interest Rate Increases, Inflation Graphs Fluctuate
In its mission to control inflation, the Fed notably raised its target range for interest rates from near zero to between 4.5% and 4.75% over the course of a year before reducing this rate in February by one-quarter of a percentage point—down from half percent in December. Despite reaching an unprecedented 40-year high earlier last year, inflation began declining during 2022’s fourth quarter; however, January’s data sees prices on the rise again.
