By Greg Robb
The Federal Reserve does not need to induce a deep recession in order to bring down high inflation, San Francisco Fed President Mary Daly said Thursday.
“Inducing a deep recession does not seem warranted by conditions, nor is it necessary to achieve our goals,” Daly said in a speech at Boise State University.
Deep recessions take a heavy toll on people and families, Daly noted.
“The more severe the recession, the greater the potential harm,” she said. “Avoiding this kind of harsh recession will not be easy, but we must try.”
The Fed has raised its policy rate by 300 basis points since March and has penciled in a few more hikes this year to get the benchmark rate in a range of 4.25%-4.5%.
The central bank has also penciled in one more for next year — to a range of 4.5%-4.75%.
Many economists think the Fed will overdo the rate hikes and push the economy into a ditch.
Daly said the Fed would have to be attentive to the data and recognize the signs that enough has been done.
“Successful policy will require vigorous analysis, extreme data dependence and a resolute commitment to delivering on our mandate,” she said.
Daly told reporters at a briefing that she is seeing the “first signs of a cooling in the labor market.”
She said business contacts are letting job vacancies expire unfilled and their recruiting intensity is falling off.
The San Francisco Fed president said that rate hikes will cool the labor market and unemployment will go up, but it does not have to be a painful disruption.
Daly said it was “more than just hope” that the unemployment rate doesn’t have to go into the 6% range in order to bring inflation down.
Currently the unemployment rate is at 3.7%, and the economy has averaged adding 378,000 new jobs over the past three months.
This gives the Fed “so much room” to cool the labor market before it becomes severe, she said.
Stocks /zigman2/quotes/210598065/realtime DJIA -0.72% /zigman2/quotes/210599714/realtime SPX -0.20% were sharply lower on Thursday as investors continued to worry about the Fed overdoing the rate hike path. The yield on the 10-year Treasury note /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -1.35% rose to 3.79%.