Mary Daly, Interview: UC Berkeley’s Fisher Center for Real Estate and Urban Economics

Jobs: “But the question then is, do we need more (rate hikes)? And in my judgment, more is needed because even if we said, wow, there’s a lot of slowing right now, 200,000 jobs. I’d just like to put it in this terms because it’s easy to understand. 200,000 jobs is about a hundred thousand jobs more per month than we need just to hold unemployment steady. We’re only bringing in, depending on the month, a hundred thousand new workers or reentering workers in the US economy. So every time we run job growth, every time job growth prints faster than that, that’s more pressure on the labor market. Wages go up, wage growth goes up, passes on to inflation, and you find yourself with things that are the dynamics that push inflation up. So I think more is needed to get us into restrictive territory.”

Step Down: “This is why you’re starting to hear, and I’ve said this myself, the idea that we don’t just keep going up at 75 basis point increments. We actually do a step down, and that doesn’t mean step down as in pause and don’t raise. It means step down into increments that are easier to manage 50, 25 basis points where you’re still moving up but you’re doing it in a way that’s not so aggressive that you don’t have to find yourself in the awkward position (of overtightening).”

Rate Forecast: “And so then from my perspective, I think getting next year to something between four and a half and five is still a very reasonable estimate of where we’ll need to go. But I say that with a double and triple underline that the key and core value of a central banker in this mode in my prudent policy is data dependence, really being data dependent, really thoughtful. Because there’s much concern of under-doing and over-doing.”

Rate Forecast: “And so we might find ourselves, and the markets certainly have priced this in, with another 75 basis point increase, but I would really recommend people don’t take that away as it’s 75 forever. Because there is a point where you say, “Okay, we’re getting nearer the terminal rate.” By the terminal rate, I mean the rate will end at as we watch how this evolves, the raise and hold. As we get closer to that, then incremental steps that are not 75 basis point increments would be appropriate. So I see myself as thinking hard about the step down but also recognizing we’re not there yet in terms of where restrictive policy will have to be in order to deliver inflation that is at 3% by next year.”