That was also how San Francisco Fed President Mary Daly saw it.
In December Fed policymakers thought they would likely
need to lift rates to at least 5.1% this year to tame inflation,
and that projection is still a "good indicator" for where policy
is going, Daly told Fox Business Network.
But, she added, "I'm prepared to do more than that, if
more is needed."
For Daly and other Fed policymakers including Fed Chair
Jerome Powell, the view is not new, and is especially not
surprising in light of what Daly called the "wow" strength of
January's job gains.
But for markets, it's a turnaround.
The Fed earlier this week increased its benchmark rate by a quarter-of-a-percentage-point to 4.5%-4.75%. In a news conference following the decision, Powell said that with the labor market still tight he expects to need "ongoing" increases to get monetary policy "sufficiently restrictive" to engineer a more balanced job market and bring down too-high inflation.
Interest-rate futures traders, initially skeptical that with a
disinflationary trend
already underway the Fed would need more than a one further
quarter point interest-rate increase in March, moved after
Friday's job report to price a further increase in May.
That move would bring the policy rate to the 5%-5.25%
range.
Traders also pushed out their expectations for eventual Fed rate cuts after the jobs report, pricing them to start in November versus in September previously.
Powell has said he does not expect inflation to fall fast enough to allow the Fed to cut rates at all this year.
Friday's Labor Department report did show slower growth
in average hourly earnings to a 4.4% pace, from an upwardly
revised 4.8% in December.
"While the Fed welcomes any signs of easing wage
pressures, the pace of growth in average hourly earnings is
still too strong to help lower inflation," Oxford Economics'
Ryan Sweet wrote.
And it is progress on inflation that will drive the
Fed's policy decisions ahead, Daly said on Friday. By the Fed's
preferred gauge, inflation registered 5% in December, a slowdown
from earlier in the year.
But it's too early to say that inflation has peaked,
Daly warned.
"The direction of policy is for additional tightening
and in holding that restrictive stance for some time," she said.
"We really will have to be in a restrictive stance of policy
until we truly understand and believe that inflation will come
squarely back down to our 2% target."
(Reporting by Ann Saphir with reporting by Ankika Biswas,
Caroline Valetkevitch, Lindsay Dunsmuir, Lucia Mutikani; Editing
by Raissa Kasolowsky, Chizu Nomiyama and Andrea Ricci)
