Further rate hikes likely as firms look to pass on costs, Fed’s Daly expects

The “bias is that rates need to go up,” San Francisco Federal Reserve (Fed) President Mary C. Daly said on Friday. While describing the US economy as good, she identified inflation as the "key problem".

On the prospect of further tightening, Daly said that “in all likelihood we will need to raise rates,” while noting the difficulty of judging whether monetary policy is sufficiently restrictive. Producers, she added, are saying that “they want to pass on costs.”

What Are Daly’s Main Policy Takeaways?

Inflation remains the principal problem we face.

The economy is in good shape, with inflation its one problem.

Employment gains are broad-based, and we are witnessing a manufacturing revival.

Evidence that AI is driving higher productivity remains limited so far.

Other technologies are helping businesses achieve more with fewer workers.

The underlying inflation rate has changed following overlapping shocks.

The policy bias points towards higher rates.

The Fed’s reaction function is understood by markets.

We will most likely have to increase rates.

Whether policy is sufficiently restrictive is difficult to judge.

Inflation is being driven higher by numerous factors, making it a concern.

A growing number of producers say they want to pass costs on.

Spending by consumers has proved unexpectedly resilient.

I am watching how the divergence between consumer sentiment and behaviour closes.

I would not devote much time to the Summary of Economic Projections, as it captures only a single point in time.

Transparency, accountability and clarity are essential for the FOMC.

I am closely monitoring services inflation excluding housing, as it is heading in the wrong direction.

Although businesses remain cautiously optimistic, inflation is a concern for everyone.