San Francisco Federal Reserve Bank President Mary Daly said today that an increase in US interest rates by 50 basis points, or 75 bp. at the next meeting in September it would be a “sensible” move to drive short-term borrowing costs slightly above the 3% level by the end of 2022 and slightly higher than that in 2023.
Since the beginning of the year the Fed has raised its interest rates by 225 basis points. taking them to 2.25% to 2.50% as part of its effort to rein in the highest inflation in 40 years.
When interest rates are at a “restrictive” level and are slowing growth and inflation, the Fed should keep them there and not quickly start cutting them, the official told CNN International.
He also stressed that the Fed is determined to drive inflation to its 2% target, adding that the central bank should not make an “unnecessary mistake” by moving into overly restrictive policy.
The minutes of the last Fed meeting (July 26-27) which were published yesterday showed that central bank officials are concerned about the risk that monetary tightening may prove excessive.
“Many” officials noted the risk that the Fed “could end up tightening policy direction more than necessary to restore price stability,” the minutes said.