San Francisco Fed President Mary Daly is out with some candid comments today. She’s plugged into the core of the Fed and was the first to signal a higher path for Fed rates in November 2021. Her latest comments skew hawkishly but it’s conditional on the final round of data before the March 22 FOMC decision.
- I am beginning to think the labor market has a shortage of workers
- Anecdotes from business leaders suggest inflation is slowing more than recent data suggests
- Inflation is still high, have to think about ‘continuous tightening’
- It would be a mistake to say we’ve done all we can do, impact of policy is still ahead
- Further policy tightening, maintained for a longer term, will likely be necessary
- Reshoring and the continued decline in labor force participation could mean more inflationary pressures ahead
- The disinflation momentum we need is far from certain
Between this and Waller, it looks like the Fed is setting up a shift in the dots to 6% or just below. There is certainly plenty of grey area and it’s contingent on the data between now and March 22 but it’s a fine line. Obviously, the market wasn’t spooked by Waller so I don’t see that changing on Daly but Powell is speaking on Wednesday and if he strikes some of these notes, the market could take notice.
