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Federal Reserve Bank of San Francisco President Mary Daly joined the ranks of officials publicly discussing an interest-rate increase as early as March as the central bank seeks to combat the hottest inflation in a generation.
“I definitely see rate increases coming, as early as March, even, because it really is clear that prices have been uncomfortably high,” she told PBS NewsHour in an interview Wednesday evening. “American consumers are feeling the pain.”
Her message, which echoes remarks from other Fed officials in recent days, has been fully absorbed by financial markets. Investors expect policy makers to raise interest rates at their meeting in March and signal a shift toward shrinking their $8.8 trillion balance sheet later in 2022.
The consumer price index climbed 7% in 2021, the largest 12-month gain since June 1982, according to Labor Department data released earlier on Wednesday.
Daly, who had been dovish on the outlook for policy until late last year, declined to say how many times she favored raising rates. Her colleague James Bullard of St. Louis, earlier told the Wall Street Journal that four quarter-point moves this year now look to be on the cards.
Chair Jerome Powell told U.S. lawmakers Tuesday that the U.S. central bank would do what’s needed to keep price pressures contained, without giving specific guidance on when officials would act.
All members of the rate-setting Federal Open Market Committee saw rate hikes this year from the near-zero levels to which they were slashed at the outset of the pandemic in March 2020. The median estimate was for three quarter-point moves.
Federal Reserve Bank of Cleveland President Loretta Mester, who spoke earlier Wednesday, confirmed that she was in that camp.
The pivot, compared to estimates in September in which nine of the 18 officials saw no rate move in 2022, heralded their determination to bring price pressures back under control.
Officials have also discussed allowing their balance sheet to shrink at a faster pace than after the financial crisis.
Mester said the central bank should shrink its balance sheet as fast as it can without disrupting financial markets and repeated her backing to a March interest-rate increase.
“The economy’s in a much stronger place than it was when we started doing the reductions last time.” Mester said during a Wall Street Journal Live event streamed on Twitter. “Frankly I would like to reduce it as fast as we can conditional on it not being disruptive to the functioning of the financial markets.”
Mester is among the more hawkish members at the U.S. central bank, though other officials have been making similar arguments in recent weeks as inflation has surged.
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