San Francisco Fed President Mary Daly recently made a speech at Princeton University, urging Federal Reserve policymakers to implement more interest rate hikes and maintain elevated rates for a longer period to address the persistent sticky inflation that is causing higher prices. Daly acknowledged that the Fed’s aggressive policy action to combat inflation has resulted in concerns and fear among investors, ranging from worries that such measures may trigger a recession to concerns that they might not be enough to achieve the Fed’s goals.

Despite the fear and uncertainty, Daly emphasized that achieving the Fed’s mandated goals requires a broader perspective and more time. Therefore, market volatility, caused by the uncertainty of the policy decision’s effectiveness, should not be seen as an indicator of the success of policy decisions.

Daly’s call for more rate hikes comes amidst ongoing concerns about sticky inflation, which has been driven by strong economic data and high inflation levels across various sectors, including goods and housing. While inflation peaked in 2022, it has continued to remain elevated, leading Daly to believe that more policy tightening is necessary.

Daly’s speech follows other warnings from Fed officials, including Minneapolis Federal Reserve President Neel Kashkari, who expressed openness to the possibility of a larger interest rate increase in March’s policy meeting, and Atlanta Fed President Raphael Bostic, who called for a half percentage point raise in the policy rate at the next meeting. Fed Governor Christopher Waller also cautioned that interest rates could rise higher than expected, given recent strong economic data.

In response to sticky inflation, the Federal Reserve has raised its target range for interest rates from near zero to between 4.5% to 4.75% over the past year. In February, the Fed slowed the pace of interest rate hikes to a quarter of a percentage point, down from half a percent in December. However, January’s inflation data showed that the rate of price increases had inched up once again, highlighting the need for continued vigilance on inflation.

In conclusion, Daly’s call for more rate hikes underscores the ongoing concerns about sticky inflation and the need for continued policy action by the Federal Reserve to address it. The recent warnings from other Fed officials suggest that the central bank is increasingly focused on this issue and is likely to take further action in the near future to combat it.