Daly: High inflation has persisted for too long; the Fed may need to raise rates further.

Mary Daly, a 2027 FOMC voting member and President of the Federal Reserve Bank of San Francisco, said on Friday that she expects the Fed will need to raise rates further, but like other policymakers, she believes the pace and timing of rate hikes remain uncertain. Daly said: "My expectation is that we will have to tighten policy further. Exactly when to raise rates and by how much remains to be decided, because we must consider all relevant factors." She said: "More tightening may be necessary, and of course... if the economic situation requires it, I am prepared to do so." Daly's remarks continued the cautious tone of Fed officials in recent days: on the one hand acknowledging that policy may need to be tightened further, while on the other emphasizing that subsequent decisions will depend on economic data. On the same day Daly made those comments, the U.S. Bureau of Labor Statistics reported that the U.S. economy added 165,000 jobs in October and the unemployment rate fell to 4.1%. The unemployment rate is the labor market variable Fed officials watch most closely. These data far exceeded Wall Street expectations. Among them, the number of new jobs was nearly three times the consensus estimate in the Dow Jones survey. Daly called the report "good news for American workers," but also noted that inflation is putting pressure on household finances. The data also showed that average hourly earnings rose 3.1% year over year in October; while measured by the Consumer Price Index (CPI), the inflation rate was 3.7% in September. "They see they can find work, so they keep spending. They have not dropped out of the labor market, but they are still spinning in place under the pressure of high inflation." She said: "High inflation has persisted for too long, nearly six years, and we are really beginning to feel that burden spreading everywhere." Daly said she is generally not worried about economic growth, but is concerned about the persistence of inflation. She said: "The job market remains stable and solid, but not booming. You see real wages falling, because those wages have not really kept up with inflation." She said: "I think this is key. The employment side is good news, but it is not so clear whether Americans will make substantial progress in the labor market." The rate-setting Federal Open Market Committee (FOMC) raised the Fed's benchmark overnight borrowing rate by 25 basis points in September to a target range of 3.75%-4%. However, the committee did not follow up with another rate hike last week, saying it preferred to wait for "more information" before deciding its next move. Daly will participate in committee voting next year and said she still favors a gradual approach. Richmond Fed President Thomas Barkin said on Thursday that he also expects higher rates in the future, but is unsure of the timeline. Daly said: "I strongly support, and fully believe, that taking action in September was the right thing to do. I also think holding steady at the last meeting was a good thing, because the world is full of uncertainty."