The U.S. central bank is trying to achieve a balancing act, not raising its benchmark interest rates by such a small an amount so that high inflation rates will persist but also not pushing policy rates up too high and slow the economy unnecessarily, said San Francisco Fed President Mary Daly on Thursday.
Slowing growth by too much “would just be an unforced error,” Daly said, in an interview on CNN International.
“We don’t want to under-do policy and then find inflation gets embedded and it’s hard to unwind. But we don’t want to overdo policy either, and find we’ve tightened the economy more than necessary,” Daly said.
The U.S. economy is already facing “a headwind” from likely slower economic growth in Europe and other regions, Daly said.
“We are facing a global economy that is growing slower and that will push back on U.S. growth and we have to take that into consideration,” Daly said.
Daly said she would like to see the Fed continue to raise interest rates “to a little bit above 3% by the end of the year.”
Daly said she would like to take rates “a little bit more” above 3% next year.
Some other Fed officials want to get rates up above 4%.
Daly said her preferred rate path will “bridle back the economy a bit and slow the pace of inflation.”
Daly said she didn’t want to ratchet rates up really rapidly this year and then cut them aggressively next year.
Asked about the next Fed meeting in September, Daly said either a 50 basis point or 75 basis point rate hike in September “seems reasonable” and the final decision won’t come until closer to the Sept. 20-21 meeting.