San Francisco Federal Reserve Governor Daly Says Open to Pulling the Reins Back on The Economy

The San Francisco Federal Reserve Governor Mary Daly said we (The Fed) know we want to be at 2.50% by year end. She was speaking in interviews with CNBC and Fox News. She added says she’s not forecasting beyond the next couple of meetings. The Fed raised rates by a half of a percent at their May meeting. That was the first time the bank raised rates this much since May 2000 when the Fed was led by Alan Greenspan.

The Balance sheet runoff will begin on June 1 with runoff caps of 60B for Treasuries expected and runoff caps of 35B for MBS vs 35B expected. Daly said “we need to get rates to neutral”

“We really have a strong economy. I think that we can weather this storm, get the interest rate up…price stability restored and still leave Americans with jobs aplentiful and with growth expanding as we expect it to.” Daly said in an interview on Fox News.

Daly Highlights

  • We need to get rates to neutral
  • Let’s get to neutral as quickly as we can
  • We know we want to be at 2.50% by year end
  • I don’t see signs of a wage-price spiral
  • I don’t see a recession
  • Says she’s open to pulling the reins back on the economy but it’s too early to proclaim what they will do
  • Can raise interest rates to where they are no longer stimulating economic growth without starting a recession.
  • Looking for supply to recover and demand to come down
  • If supply doesn’t recover and demand doesn’t slow, they need to put rates into restrictive territory
  • I hope inflation has peaked but I don’t want to declare victory
  • Says she’s not forecasting beyond the next couple of meetings
  • We need to get rates to neutral

Federal Reserve FOMC Statement May 2022

Fed Boardroom

Federal Reserve Announcement Wednesday 4 May 2022 14:00:00 ET

The FOMC raised the target rate by 50 basis points to 0.75% to 1.00%

Conference To Follow At 2.30 ET PM With Chairman Powell

Highlights

  • Decision was unanimous
  • Band is now from 0.75% to 1.00%
  • At the previous meeting, the Fed hiked by 25 bps to 0.25-0.50%
  • No mention of anything indicating a faster or ‘expiditious’ pace of tightening, as speculated by some
  • At last look the Fed funds market is priced at 90.5% for a 50 bps hike and a 9.5% chance of 75 bps
  • Although overall economic activity edged down in the first quarter, household spending and business fixed investment remained strong
  • Added the line: “The Committee is highly attentive to inflation risks.”
  • Job gains now described as ‘robust’ vs ‘strong’ previously
  • Balance sheet runoff will begin on June 1
  • Balance sheet runoff caps of 60B for Treasuries vs 60B expected
  • Balance sheet runoff caps of 35B for MBS vs 35B expected
  • Balance sheet runoff phased in over 3 months vs 3 months expected

May 4 22 FOMC STATEMENT CHANGES via @Newsquawk

The full statement from the May 2022 Fed Decision

Although overall economic activity edged down in the first quarter, household spending and business fixed investment remained strong. Job gains have been robust in recent months, and the unemployment rate has declined substantially. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.

The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The implications for the U.S. economy are highly uncertain. The invasion and related events are creating additional upward pressure on inflation and are likely to weigh on economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions. The Committee is highly attentive to inflation risks.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2 percent objective and the labor market to remain strong. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 3/4 to 1 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee decided to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities on June 1, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in conjunction with this statement.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Esther L. George; Patrick Harker; Loretta J. Mester; and Christopher J. Waller. Patrick Harker voted as an alternate member at this meeting.

Implementation Note issued May 4, 2022

Source: Federal Reserve

From the TradersCommunity Research Desk