Daly’s comments are the clearest pushback yet against the jump in October hike pricing that followed the CPI data. Expect them to trim the odds of a move on October 27-28 without denting expectations for a December increase. That mix would ease some pressure on the front end of the Treasury curve while leaving longer-dated yields anchored to a higher-for-longer outlook. Because Daly linked headline inflation directly to gasoline prices, oil remains the key swing factor. A further surge in crude tied to the Iran war would test her view that the Fed can afford to wait. Her remarks also contrast with Goolsbee’s more anxious tone, a reminder that officials agree on direction but not on timing.

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Daly agrees the Fed probably has more hiking to do, but she sees no reason to rush it out the door this month.

Summary:

• San Francisco Fed President Mary Daly said further rate increases are more likely than not to be needed, according to a Reuters interview
• She said the timing is still being deliberated, and signalled no need to move at the October 27-28 meeting
• Daly said she does not feel any urgency, preferring to take time for a thoughtful decision rather than react on limited information
• She said gasoline prices are driving headline inflation, while core inflation remains sticky, as expected
• Daly said risks of above-target inflation remain elevated, but a stable labour market lets the Fed focus on price stability
• She found it reassuring that markets calmed after their initial strong reaction to the CPI data

The Federal Reserve will probably need to raise interest rates further to bring down inflation, San Francisco Fed President Mary Daly said on Wednesday, but she signalled there is no need to act at the central bank’s October 27-28 meeting. Daly made the remarks in an exclusive interview with Reuters.

Daly said further adjustments were more likely than not, but that she was still weighing their timing. She said she did not feel any urgency to decide on a limited set of information and believed the Fed had the time it needed. In her view, reacting when there is time to make a good decision would be imprudent, and it is better for policymakers to be thoughtful and deliberate.

Her comments came on the same day as September consumer price data, which showed inflation running at 3.7% from a year earlier, above expectations and well over the Fed’s 2% goal. Daly said the figures showed gasoline prices driving headline inflation, while core inflation, which strips out volatile food and energy costs, remained sticky, as she had expected. She said it was not yet clear whether inflation would ease as recent shocks fade, or worsen if they persist.

Daly said the risks of inflation staying above target remain elevated. A stable labour market, she added, means the Fed can concentrate on price stability. She also said she found it reassuring that markets had calmed after an initially strong reaction to the CPI report, and that investors understood how the Fed would respond.

The remarks help define where policymakers stand ahead of this month’s meeting. Earlier on Wednesday, Chicago Fed President Austan Goolsbee called the CPI data discouraging, pointing to persistent services inflation. The Fed’s Beige Book survey showed price pressures intensifying across parts of the country, driven increasingly by diesel costs. The CPI release had lifted market expectations of an October hike, and Daly’s comments suggest she would prefer to wait.

The Fed raised its target range by a quarter point to 3.75% to 4% in September and signalled one more increase this year. Most officials have pointed to December rather than October as the likelier timing, and Daly’s comments fit that view.

This article was written by Eamonn Sheridan at investinglive.com.

Source: Investing Live - Central Bank