Fed's Daly: Interest Rates Just 'Part of the Puzzle' on Inflation

With consumer prices at the highest levels in 40 years, the Federal Reserve is talking about raising rates as early as next month, which could help bring inflation down some, but that's not the "only part of the puzzle," Mary Daly, the president and CEO of the Federal Reserve Bank of San Francisco, said Sunday.

"It is very true that inflation is too high and is really hitting the pocketbooks of average Americans across a wide range of categories," Daly said on CBS's "Face the Nation." "The Federal Reserve is actively focused on this. We've talked about changing our policy stance, raising rates as early as March, which would certainly be something I would support, barring any surprises."

And while that move would bring inflation down to "a place where people don't have to worry about the price of bacon or the price of used cars," the country must also get its supply chains repaired and people must get out of their homes again and turn the focus on service consumption, not just the consumption of goods, Daly said.

However, Daly said she does not favor a half-percent interest rate increase in March, because Fed policy history shows that "abrupt and aggressive action" can destabilize growth and price stability. 

"What I would favor is moving in March and then watching, measuring, being very careful about what we see ahead of us, and then taking the next interest rate increase when it seems the best place to do that," said Daly. "That could be in the next meeting, or it could be a meeting away. But either way, the most important thing is to be measured at our pace and importantly, data-dependent."

Show host Margaret Brennan noted that the financial markets are anticipating six to seven rate hikes in the upcoming year, but Daly said it's too early to predict that. 

"We have Ukraine right now, [a] geopolitical risk," said Daly. "We are just coming out of our homes after omicron. We hope that the virus will stay at bay, but we have to watch."

There will also be further reports on employment, jobs, and inflation before the Fed's meeting in March, said Daly.

"All of those things are very important because before we make any pronouncements about exactly what we'd be doing on this year, I think what every American wants to know and deserves to hear is that we're on this and we're going to take those data in and get the accommodation right-sized for the economy," she added. 

The Fed has been injecting emergency support measures because of the pandemic, but is "continuing to taper asset purchases" that will be complete by early March, Daly continued. 

The United States is also threatening economic sanctions on Russia over the potential of an invasion of Ukraine, and those would come at a time when Americans are already facing uncertainty about the economy and COVID, said Daly. 

"Uncertainty, we know, affects consumer sentiment and ultimately affects consumer demand," said Daly, adding that businesses are being cautiously optimistic, particularly in her district in San Francisco.

"They're bullish on coming out of the pandemic strong, but they're also very aware that we're not out of concerns yet, and we have many things in our future that we have to balance," said Daly. 

However, if the Fed acts too aggressively, that could add to the uncertainty, but if it acts too slowly "then, of course, we have accommodation that's too much for the economy," she continued. "So that's why this balanced approach, we might look at it. I see March as an appropriate time to raise the interest rate, and then we have to take in all of the information that you've mentioned and make the right decision at the right time for the economy."

• Fed's Daly: March Liftoff Is 'Quite Reasonable'
• Fed's Daly Sees Rate Hikes Ahead, But Says 'Measured' Approach Needed