KEY TAKEAWAYS

  • San Francisco Fed President Mary Daly said that recent rises in bond yields were akin to a rate hike.
  • Daly said increasing bond yields showed that financial conditions were tight, “diminishing” the need for further Federal Reserve interest rate hikes.
  • She also said the Fed needed to have the “agility” to act by not forecasting its future moves.
  • Despite recent drops in prices, the Fed will need to see more improvement on “supercore” inflation before it can lower rates, she said.

The recent rise in Treasury yields shows that the Federal Reserve has so far raised interest rates high enough in its fight against inflation, San Francisco Fed President Mary C. Daly said Thursday, but added that the Fed should be open to more rate hikes if needed.1

Citing a bond market that has risen about 36 basis points since September, Daly said that tight financial conditions over the past 90 days “diminished” the need for the Federal Reserve to again raise its benchmark interest rates from its current range of 5.25% to 5.5%.

“It’s the equivalent of a rate hike and so then a need to do tightening additionally is not there,” Daly said in a question session with Bloomberg host Lisa Abramowicz following her comments to the Economic Club of New York.2

In her remarks, Daly noted that the recent lowering of prices, along with a gradual slowing of the job market, shows that progress is being made in the fight against inflation, but it’s not yet “victory.”

“A gradual return to 2 percent inflation is in our sights, but it is not yet in our grasp. That is the final mile,” she said.3

Fed Needs ‘Agility,’ Along with Fall in Supercore Inflation

While her comments implied that the Federal Funds rate should stay where it is for now, she also spoke of the central bank maintaining “agility” in its ability to take action by keeping its options open and not signaling future moves.

“In other words, rather than a prejudged path of what policy will be, we need an open mind and optionality,” she said.