Mary Daly, Speech: Policy Nimbleness Through Forward Guidance

In the Speech Segment: “Last week, the FOMC increased the funds rate by 75 basis points and signaled that further rate hikes of a similar magnitude are likely.13 This was the largest single meeting increase since 1994 and puts policy on an expeditious path to neutral by the end of the year. After that, I see additional tightening beyond neutral as the likely next step.”

“How much additional tightening will be required depends on a number of factors that fall outside of the Fed’s direct control, including the speed and magnitude of supply chain recovery, the duration of the war in Ukraine, and the willingness of individuals who have left the labor force to reenter.”

“Just as 2021 required navigating a broad range of possible outcomes, policymaking now is also about managing risks. If supply continues to fall short and inflation remains high, we will need to do more. If conditions improve and supply bounces back, we can do less.”

“Regardless of which path we take, there will likely be some slowing in the economy. That’s how monetary policy works. We remove accommodation or adjust rates into more restrictive territory, and growth slows and the labor market cools.”

“I do expect the costs of adjustment to be moderate, with some slowing of GDP growth below its longer-run trend and an increase in the unemployment rate from the very low levels we see today.”

In the Interview Segment: “And one of the reasons I’m quite supportive of the policy actions we’re taking is that ultimately, you want to get the rate up as expeditiously as you can subject to a lot of volatility that you see in financial markets but actually shows up in the allocations to households and businesses, and so when the markets had priced in 75 basis points increase, then lets get a 75 basis point increase and lets try to get up to neutral and get some relief and that’s the remedy for being behind is act, guide and then act.”