The Federal Reserve remains on hold in October and adds another vote: Daly says there is enough time to make the right decisions

The Zhitong Finance App learned that San Francisco Federal Reserve Chairman Mary Daly said on Wednesday that the Federal Reserve may need to raise short-term interest rates further to curb excessive inflation, but she hinted that there was no need to do this at the Federal Reserve's October 27-28 meeting.

In an interview, Daly said, “We are more likely to need further adjustments, but as far as I am concerned, the timing of these adjustments is still an issue we are considering.” “I don't think there is 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 hinted that the Federal Reserve is unlikely to raise interest rates this month. The Federal Reserve's policy interest rate is currently in the 3.75% to 4.00% range. Long-term borrowing costs are even higher, and some of them — like the 7.5% mortgage rate — are dampening demand in certain areas of the economy.

Daly said she believes the financial market understands the Federal Reserve's “reaction function,” and pointed out that traders reacted to early Wednesday's data, which showed that in the 12 months up to September, consumer price inflation accelerated to 3.7%, slightly faster than economists' expectations. The Federal Reserve's goal is to achieve 2% inflation according to another different but related indicator.

She said that despite the initial “strong” reaction — interest rate futures traders quickly bet on the Federal Reserve's interest rate hike in October — investors “calmed down” after analyzing the data. The rise in gasoline prices contributed to the overall increase, and although underlying inflation remained sticky, it did not rise sharply.

“This data point really shows that the risk of inflation is still too high,” Daly said. “The risk of inflation has risen again, but the risk is not real, and when there is time to make the right decisions, reacting based on risk alone is imprudent in my opinion.”

Daly said that the continued stability of the labor market gave the Federal Reserve room to focus on price stability.

But she said, “Why force urgency when there's no need for urgency? Why not take the time to think it through and think it out calmly? And we have more meetings to come.”

Financial market pricing currently shows that the probability that the Federal Reserve will raise interest rates for the second time in a row at the next meeting is about 40%, higher than before the data was released, but interest rate hikes are no longer viewed as the most likely outcome, as soon as the inflation report was released.

She said the market “understands our commitment to price stability and will do whatever it takes to achieve this goal”.

Policymakers “have a responsibility to effectively communicate with the public to be responsible, transparent and clear,” she said. “The responsibility is to make it very clear to people what your goals are, why you're responsible, and how you're going to balance those risks.”