Fed's October Hold Adds Another Vote: Daly Says There's Enough Time to Make the Right Decision

Federal Reserve Bank of San Francisco President Mary Daly said Wednesday the Fed may need to raise short-term interest rates further to curb too-high inflation, but she signaled there is no need to do so at the central bank's Oct. 27-28 meeting. "We are more likely to need further adjustments, but for me, the timing of those adjustments is still something we are weighing," Daly said in an interview. "I don't feel an urgent need to make a decision with limited information. I think we have the time we need." In recent weeks, several of Daly's colleagues have also signaled the Fed is unlikely to raise rates this month. The Fed's policy rate currently sits in a 3.75% to 4.00% range. Longer-term borrowing costs are even higher, with somesuch as the 7.5% mortgage raterestraining demand in some parts of the economy. Daly said she believes financial markets understand the Fed's "reaction function," noting that traders responded to data earlier Wednesday showing consumer price inflation accelerated to 3.7% in the 12 months through September, slightly faster than economists expected. The Fed aims for 2% inflation by a different but related measure. She said that while the initial reaction was "strong"interest-rate futures traders quickly bet on a Fed rate hike in Octoberinvestors "calmed down" after dissecting the data. Higher gasoline prices drove the headline gain, while underlying inflation, though still sticky, did not rise sharply. "This data point does suggest inflation risks remain elevated," Daly said. "Inflation risks have gone up again, but risks are not reality, and reacting to risks alone when there is time to make the right decision seems imprudent to me." Daly said continued steadiness in the labor market gives the Fed room to focus on price stability. But, she said, "when there is no need to be urgent, why impose urgency? Why not take the time to deliberate and weigh things carefully? And we have more meetings ahead." Financial market pricing currently shows about a 40% probability that the Fed will raise rates for a second straight meeting at its next gathering, up from before the data but no longer treating a hike as the most likely outcome as it did shortly after the inflation report was released. She said markets "understand we are committed to price stability and will do whatever it takes to achieve that." Policymakers "have a responsibility to communicate effectively with the public, to be accountable, transparent and clear," she said. "The responsibility is to explain very clearly to people what your goal is, why you are accountable, and how you will balance these risks."