Mary Daly, president of the San Francisco Federal Reserve, said Thursday that she sees the need to move quickly to raise interest rates this year as inflation remains high.
“I like to think of it as quickly moving toward neutrality,” Daly told Yahoo Finance in an exclusive interview on Thursday. “The economy clearly doesn’t need the accommodations we’re offering.”
The Fed hopes that raising borrowing costs will dampen consumption and spending that has driven prices higher.
The central bank chief told Yahoo Finance that she will support a target Fed funds rate hike of 0.50% at the conclusion of the next policy-setting meeting on May 4. The Fed has not moved to raise interest rates in increments greater than 0.25% since 2000, underscoring the need for aggressive action to quell the rapid pace of rate increases.
Daly said she would like to see the Fed raise the short-term rate to between 2.25% to 2.5% by the end of the year – away from the current target range of 0.25% to 0.50%.
In March, prices in America (as measured by the Consumer Price Index) rose 8.5% year over year. Among the most rapidly inflated categories: gasoline, airline ticket prices, and car rental.
Daly said the higher reading for March likely reflects supply disruptions linked to the Russian invasion of Ukraine. Wheat exports from Ukraine have pushed up food prices, and Western sanctions have essentially cut off Russian energy and minerals from the global economy.
The President of the Federal Reserve Bank of San Francisco said that it is too early to determine the inflationary readings in the US in the coming months.
“I think forecasting peak inflation is a risky exercise,” Daly said. She noted the economic shutdown of COVID-free central China.
The challenge for the Fed: Raise interest rates enough to curb inflation but not high enough to push the economy into recession.
Of the risks of a recession, Daly said: “There is no sign that the economy is going to go into recession just because we are canceling accommodations. It has been proven that they can be self-sufficient.”
The Fed’s next policy-setting meeting is scheduled for May 3-4.
Brian Cheung is a reporter covering the Federal Reserve, economics, and banking at Yahoo Finance. You can follow him on Twitter Tweet embed.
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