The Fed: Fed’s Daly backs ‘marching’ interest rates up to a ‘neutral’ rate and maybe higher

The Federal Reserve needs to steadily raise interest rates up to a neutral level and look at tightening monetary policy a little bit more to restrict economic growth so that inflation comes back down, said San Francisco Fed President Mary Daly on Tuesday.

“Inflation is far too high. People are thinking about inflation when they get up in the morning and they’re thinking about it when they go to bed at night,” Daly said, in a virtual conversation sponsored by The Hamilton Project.

So Daly said she has adjusted her policy stance.

“It is time to remove accommodation. So that means marching up to neutral and looking at whether we need to go over neutral — tighten a little bit and restrict the economy to ensure that inflation comes back down,” Daly said.

The Fed estimates that 2.4% is a “neutral” rate, which doesn’t boost growth or dampen demand.

The central bank’s latest “dot-plot” projects that its benchmark interest rate will reach that level sometime in 2023. Some Fed officials, notably St. Louis Fed President James Bullard, wants to hit that level this year.

Those betting on the path of interest rates in the fed funds futures market expect the Fed to hit the neutral level in December, according to CME Group.

The San Francisco Fed president, one of the most dovish of the dozen Fed regional presidents in the past, is not a voting member of the central bank’s interest rate committee in 2022.

U.S. stocks


were higher on Tuesday despite more hawkish talk from the Fed. The yield on the 10-year Treasury note

was up to 2.374%.

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