Fed's Daly calls for central bank patience in the face of high inflation

San Francisco Federal Reserve Bank President Mary Daly called for the Federal Reserve to be patient when it comes to interest rate hikes despite high inflation, according to a speech to the Commonwealth Club of California cited by Reuters. Daly said that patience is the boldest and best action and that it would be better to wait for more clarity on the economy and inflation than it would be to raise interest rates pre-emptively. Raising rates now would not fix high inflation, Daly argued, but would instead curb demand and slow the US recovery. 

Daly said that there is good reason to think that inflation won't last beyond the pandemic and that over the next several quarters, the bank will watch to see if inflation eases and discouraged workers return to the labour force. Once the Fed has a clearer signal as to the state of the economy, Daly reasoned, the bank would be ready to act. Moreover, the Fed is well-positioned to act to reign in inflation if it does look to be more persistent.  

Market Reaction

Daly's comments are more dovish than those from St Louis Fed President James Bullard earlier, who called for the Fed to accelerate its QE taper pace to $30B/month to make way for potential hikes in Q1 2022. Nonetheless, they have not been able to slow the USD's rise as the DXY continues to charge towards the 96.00 level.