Mary Daly, president of the Federal Reserve Bank of San Francisco, noted that the central bank may have to increase interest rates to bring inflation under control. Even so, she acknowledged that the timing and pace of any future decisions are still unclear.
My expectation is, we’re going to have to tighten policy further. […] More is likely to be needed, and certainly … I’m prepared to do that if that’s what the economy calls for.
Mary Daly.
Pointing to current market turbulence , she also urged a cautious approach—one that relies on fresh data and a measured, step-by-step progression.
Daly insists that the real economic issue is persistent inflation
Daly warned that the Fed can’t back down on inflation after so many months of high prices. Fortunately, she pointed out, a strong labor market will allow the central bank to focus entirely on price stability. According to the Bureau of Labor Statistics, the US added 165,000 jobs in October, a number well above Wall Street’s expectations. To put it in perspective, the economy added almost triple the number of jobs the Dow Jones estimate called for.
So far, Daly considers the recent hiring numbers a positive sign; however, she pointed out that paychecks aren’t growing fast enough to offset inflation. Hourly pay rose roughly 3.1% annually last month, falling short of September’s 3.7% consumer price index reading.
“The job market remains stable and solid, but not booming, and you see real wages falling because those wages are not really keeping up with inflation. I think that’s the crux of this. Good news on the jobs front, not so clear that Americans are going to gain ground in the labor market,” Daly said.
The gap between wage growth and inflation shows the pressure American households face: when consumer prices rise faster than earnings, workers lose purchasing power even when they are employed and receive salary increases. This means there is less money left in the household after paying for food, housing, transportation, and utilities.
For the Fed, persistent inflation is a hard policy problem. Higher interest rates make borrowing more expensive so consumers and businesses may be less willing to spend or invest. In time, weaker demand will ease price pressure, but tighter monetary policy also slows economic activity and makes it harder for businesses to expand or hire additional workers.
In her interview, the San Francisco Fed chief also validated the central bank’s recent track record, particularly the September rate hike and the October hike pause , as the right calls. Nevertheless, she made it clear that she is ready to raise rates again if that’s what the economy needs.
As for tech stocks, she admitted the ongoing shift in AI valuations has been painful for investors, but it hasn’t turned chaotic. Even if the AI cooldown drags growth down a tiny bit, she insisted she isn’t worried about a deep recession.
The AI-related stock sell-off has added another layer of uncertainty to the economic outlook. Investors have been asking more and more recently whether all the money being spent on artificial intelligence infrastructure will generate returns fast enough to justify today’s valuations. Daly called the market correction painful but orderly — suggesting she doesn’t see it as an immediate threat to financial stability.
She also said a modest slowdown in AI investment wouldn’t necessarily lead to a recession. But the developments remain relevant to policymakers as they assess business investment, financial conditions, and the overall outlook for economic growth.
Daly is set to vote on policy decisions next year. As of September, the Federal Open Market Committee raised the central bank’s benchmark interest rate by 25 basis points, establishing a new target range of 3.75% to 4%.
Other Fed leaders support rate hike
Similarly, St. Louis Fed Chief Alberto Musalem also warned that inflation remains the biggest economic hurdle. Speaking to Midwestern business executives, he called inflation a “regressive tax” that harms the economy, adding that cooling prices quickly is the best strategy for boosting growth and jobs.
St. Louis Fed Chief Alberto Musalem won’t vote on the FOMC this year, but has nevertheless made it clear that he supports lifting interest rates higher. The Fed ultimately chose to leave its benchmark rate unchanged during the October session, but pressure is mounting in markets for another rate hike at the upcoming December 8–9 meeting. Cleveland Fed President Beth Hammack also suggested that further rate hikes could be required to tame inflation. However, she advocates for a cautious approach, favoring tiny, incremental policy steps.
Richmond Fed President Thomas Barkin spoke more recently as well, saying he also sees higher rates on the horizon but isn’t sure about the exact timing.
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