Key facts
- Daly said she will deliberate on rates with colleagues at the December 8-9 meeting and at all future meetings.
- Core CPI, excluding food and energy, rose about 0.3% month over month in each of the last three months, Daly said.
- Daly said services inflation excluding housing is not moving in the correct direction and tends to be sticky.
- Daly said producers increasingly report running out of room to absorb costs in margins and want to pass them to consumers.
- Daly said consumer spending remains resilient and she is watching whether consumers pull back over the next one to three months.
San Francisco Federal Reserve President Mary Daly said on November 13 that her bias is that the central bank will need to raise its policy rate, pointing to services inflation moving in the wrong direction and some signs of inflation persistence. She spoke at a University of Nevada, Las Vegas Center for Business and Economic Research forecast event.
"We're going to need to, in all likelihood, raise rates; I will deliberate this with my colleagues in December at our meeting and in all future meetings and make the collective decision that we judge is most appropriate for the economy that is evolving," Daly said.
Daly said core CPI, which excludes volatile food and energy prices, has risen about 0.3% month over month in each of the last three months. That is far higher than the 0.2% or less she said would be consistent with year-over-year inflation at the Fed's 2% target.
She said she is particularly concerned that services inflation excluding housing is not moving in the correct direction, a slice of inflation that tends to be sticky. She said producers increasingly report running out of room to absorb costs in margins and want to pass them to consumers, an inflationary impulse she said the Fed wants to avoid.
The Fed raised its policy rate in September but held it steady in October, and financial markets are betting heavily on quarter-point interest-rate hikes at each of the Fed's December 8-9 and January 26-27 meetings, Reuters reported. Daly said she feels markets understand how the Fed sets rates in response to economic conditions, without remarking specifically on the timing of coming rate hikes.
Daly said she is also watching consumer spending, which accounts for most of the US economy. She said spending remains surprisingly resilient and that she is looking at whether consumers give up or keep going even if prices rise over the next one to three months, especially around the holiday season. She said she is starting to hear in Las Vegas and other states that the consumer may be running out of gas.