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"So
I look at the data, and I see that it is obvious that we need to
pull some of the accommodation out of the economy, but history
tells us with Fed policy that abrupt and aggressive action can
actually have a destabilizing effect on the very growth and
price stability that we're trying to achieve," Daly told CBS'
"Face The Nation" in an interview.
Daly's remarks followed a tumultuous week with regard to what
the Fed may do at its meeting next month, when the central bank
is expected to begin raising interest rates from the near-zero
levels they have been since the early days of the coronavirus
pandemic, a move Daly said she supports.
But after an unexpectedly strong reading of inflation on
Thursday, one of Daly's colleagues - St. Louis Fed President
James Bullard - called for at least a full percentage point of
rate hikes by the end of June.
That helped drive a rapid recalibrating of expectations for the
Fed's first move, with interest rate futures now more or less
fully priced for a half-point increase in March and up to 1.75
percentage points of tightening by year end, according to CME
Group's FedWatch tool. When Fed officials last provided
quarterly forecasts in December, the median expectation for the
Fed's target rate at the end of 2022 was roughly half that
level.
Daly appears unready to shift immediately into high gear even
though inflation is running well above the Fed's flexible target
of 2% annually.
She said the Fed should lift rates at the March 15-16 meeting,
after which officials should be "watching, measuring, being very
careful about what we see ahead of us, and then taking the next
interest rate increase when it seems the best place to do that.
And that could be the next meeting or it could be a meeting
away."
Asked about how the crisis in Ukraine plays into Fed officials'
thinking amid worry that Russia could invade "any day now," Daly
said its primary economic effect is the degree to which it adds
to consumer uncertainty.
"Any time ... that you have geo-political risk, it creates
uncertainty, and Americans are already facing quite a bit of
uncertainty - uncertainty about when COVID's ever going to leave
our shores, uncertainty about how the economy's going, so this
is just another factor," Daly said. "And uncertainty, we know,
affects consumer sentiment and ultimately affects consumer
demand."
(Reporting by Dan Burns and David Lawder; Editing by Bill
Berkrot and Lisa Shumaker)
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