Fed’s Daly says further rate hikes likely needed to curb inflation

Federal Reserve Bank of San Francisco President Mary Daly said Friday the US central bank will likely need to raise interest rates further to bring down elevated inflation levels.

"My expectation is, we're going to have to tighten policy further," Daly said during a CNBC interview, though she noted the exact timing and magnitude remains unclear. She pointed to ongoing volatility in multiple areas, saying "those volatilities are something that you have to take into account, collect more information, and be deliberate but more gradual in how you get there when you don't know exactly where you're going to need to head."

Daly said inflation has persisted at high levels for too long and must be the central bank's top priority. She added that the strong labor market provides the Fed with room to focus on controlling inflation.

The San Francisco Fed chief described the recent jobs report as good news but noted that wage growth is not booming and real wages are falling. She said she would like to see higher confidence on the inflation front.

Daly called the September rate increase the right decision and said holding rates steady at the most recent meeting was also appropriate. She stated she is prepared to raise rates if economic conditions require it.

On technology stocks, Daly described the repricing of AI-related investments as "painful" but orderly so far. She said if the AI repricing signals slower demand, growth might decline slightly, though she is not concerned about a substantial decline in growth.

Daly said businesses want inflation to come down and remain cautiously optimistic about the economic outlook. She noted that when stepping back from the volatility, the current market adjustment represents the type of rebalancing one would hope for.