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The Fed: Fed’s Daly says ‘everything on table’ in May, including 50 basis point hike and shrinking balance sheet

San Francisco Federal Reserve President Mary Daly on Wednesday said the central bank could raise its benchmark interest rate by 50 basis points at its next meeting in early May and also announce a decision to start to shrink its balance sheet.

“I have everything on the table right now,” Daly said, in an interview with Bloomberg.

“I think the data will tell us whether 50 basis points or 25 basis points and the balance sheet is the right recipe,” Daly added.

Fed watchers had generally been thinking that a half a percentage point hike and a start to shrinking the balance sheet would be too aggressive for policymakers.

But over the past few days, several Fed speakers have put this concern to rest.

On Monday, Fed Chairman Jerome Powell said the Fed needed to move “expeditiously” to get its policy rate higher.

Earlier Wednesday, Cleveland Fed President Loretta Mester said she supported “front-loading” interest rate hikes and starting to shrink the central bank’s balance sheet.

The Fed is expected to lay out more details of how it wants to start to shrink its $9 trillion balance sheet on April 6. when the minutes of its March 15-16 meeting are released.

All things being equal, this process, known as quantitative tightening, is expected to cause financial conditions to tighten.

The Dow Jones Industrial Average
DJIA,
-0.84%

and the S&P 500 index
SPX,
-0.49%

were trading lower on Wednesday. The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.361%

slipped to 2.374% after hitting the highest level since May 2019 in the prior trading session.

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