Mary Daly, Interview: WSJ Live

Fed Funds

“Phase one is raise the interest rate until you get it into somewhat restrictive territory. That part is complete. Now we have to raise the interest rate just enough to be able to sit with that and keep the economy bridled sufficiently to bring inflation down. That is going to be challenging to find that rate, and so that’s why I said at the top of the hour that starting point is the SEP, putting it between 5.25 and 5.5, if memory serves.”

“My own projection is we’ll need to go above 5. How far above 5 we need to go, not completely clear.”

“So, heading into the next meeting I see those as both on the table, 25 or 50. And it really is about incoming information.”

Inflation

“My own projection is that my modal outlook—the thing that I think is most likely—is that we’ll get into the low 3s by the end of this year, which would be welcome relief for Americans facing high inflation that’s not been anywhere close to the low 3s. And then get closer to 2% by the end of ’24, and then get into 2% in early ’25. So that’s the future I see.”

“We don’t need to see inflation get to 2%. We don’t need to see inflation even get necessarily down to something within a stone’s throw of 2% before we would stop raising and simply hold.”

Jobs

“So I think the vacancies are going to play a large role, but I don’t think it’s going to be everything. And I also think it’s not going to raise the unemployment rate, you know, to some really challenging level that is too much pain to tolerate. So that’s why I put in an estimate of around 4.5-4.6. And that’s what I expect to happen, given the rate of increases we’ve taken, the additional ones that I’ve planned, and then holding them there to bring the economy back into balance.”

Wage Growth

“So when I saw the wage growth data coming down, that seems completely consistent with the fact that the labor market is slowing … we still have numbers that are above, well above, what it takes to just hold the economy steady. We’re making more jobs than we have new entrants or re-entrants coming in willing to take them. So we’re still out of balance, but it is slowing … (balance would occur when) … wage growth realigns itself with 2% inflation and productivity growth, and then we see that pushing through to price inflation, and all of that brings us back down to that 2% target on price inflation.”