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The Fed: Fed’s Daly, despite ‘welcome’ CPI data, still wants to raise benchmark rate above 4.5%-4.75% range

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The Federal Reserve should still raise its benchmark interest rate slightly above a 4.5%-4.75% rate despite the “welcome’ consumer price data released earlier Wednesday, said San Francisco Fed President Mary Daly on Thursday.

Daly said she wanted to get the Fed’s policy rate to a “sufficiently restrictive” level where it can be confident inflation will come down.

This calculation will come from “a whole set of inflation” and not one CPI report, she said, in a virtual discussions sponsored by the European Economics and Financial Centre in London.

See: U.S. inflation shows signs of easing, perhaps giving Fed ammo to go slower

“It is indeed good news that inflation moderated. One month of data does not a victory make,” she added. An annual inflation rate of 7.7% is “very limited relief” to consumers, Daly added.

The Fed has engineered four straight 0.75 percentage point rate hikes, bringing its benchmark rate up to a range of 3.75%-4%.

In September, the Fed penciled in a terminal rate of 4.5%-4.75%.

Daly said she thought the Fed would have to “tighten a little more than that to be “sufficiently restrictive,”

Slowing down the pace of rate hikes is an appropriate thing to think about, Daly said.

But that is not to be confused with the “terminal” rate.

Daly rejected a suggestion that the Fed might “pause” its rate hikes.

“I’m going to throw out the word pause and not use it,” Daly said, because people often hear that the central bank has stopped.

“Pausing is not the discussion. The discussion is stepping down,” she said.

Daly said she didn’t want to overtighten and throw the economy into a sharp recession but she also wanted to get inflation back down to 2%.

One of the mistakes from the 1970s was when the Fed stopped raising rates thinking inflation was coming down. Inflation then “reared its ugly head” and got solidified in consumer psychology, she said.

“I am not prepared to make that mistake,” she said.

Stocks
DJIA,
+2.75%

SPX,
+4.39%

soared on Wednesday after the softer-than-expected consumer price data was released. The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.850%

dropped sharply to 3.86

Cleveland Fed: Median CPI increased 0.5% and Trimmed-mean CPI increased 0.4% in October

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