San Francisco Fed's Daly: Too early to declare victory over inflation

San Francisco Fed President Mary Daly said the Fed could raise interest rates by 50 basis points or 25 basis points at the FOMC meeting scheduled for Jan. 31-Feb. 1. “I can make an argument for both options. The Fed needs to be as gentle as it can in trying to bring inflation down, but at the same time make absolutely sure that high inflation doesn’t become entrenched,” Daly said in an interview published Monday. Daly said she expects the central bank to raise interest rates above 5% before pausing, although the ultimate level is uncertain and depends on incoming inflation data. Daly also said she thinks the policy rate, currently at 4.25%-4.50%, should go to 5.0%-5.25% and stay there to bring inflation down. However, Daly stated that data will determine how much interest rates should go up, and he also said that he expects the unemployment rate in the US, which is currently 3.5 percent, to rise to 4.5 or 4.6 percent, and inflation, which is currently 5.5 percent, to fall to 3 percent by the end of 2023. While the Fed slowed down the pace of interest rate hikes at its December meeting, he emphasized that additional tightening will come to bring inflation to the central bank's 2 percent target and that borrowing costs may remain high for a while.