San Francisco Federal Reserve President Mary Daly said on Monday the real-world impact of the U.S. central bank's interest rate hikes is likely greater than what its short-term rate target implies.
Against the Fed's current short-term target rate of between 3.75% and 4.00%, Daly said some researchers have found "the level of financial tightening in the economy is much higher than what the funds rate tells us." Compared to the current target rate, she added, "financial markets are acting like it is around 6%."
That said, the Fed's policy rate is currently in "modestly restrictive" territory and "there is more work to do" to get monetary policy in the right place to cool inflation, Daly said a speech before the Orange County Business Council in California. She also cautioned against using the market-based 6% funds rate setting as a reference point for setting actual policy. "I use the proxy rate as a point of data, not as an indication we should stop earlier," she told reporters.
In economic projections released in September, Fed policymakers penciled in a mid-4% target rate for next year. Comments from a wide range of officials since then, however, have suggested that, given the performance of inflation and the ongoing strength of the job market, they may want to go higher than that.
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