(Reuters) – San Francisco Federal Reserve Bank President Mary Daly on Tuesday called for central bank patience in the face of high inflation that, she predicted, will likely fade on its own as the pandemic recedes.
“Reacting in response to things that aren’t likely to last will move us farther from — not closer to — our goals,” Daly said in remarks prepared for delivery to the Commonwealth Club of California.
Raising interest rates now would not fix the supply chain bottlenecks and other temporary issues that are pushing up prices, she said, but would slow job creation and the recovery.
“While it’s easy to mistake motion for competence or action for attention, running headlong into a fog can be costly,” she said. “Patience is the boldest action we can take.”
Daly’s remarks come as some of her colleagues – most recently St. Louis Fed President James Bullard earlier on Tuesday – urge a quicker end to the Fed’s asset purchases to put the Fed in position to raise rates. The Fed began phasing out its bond-buying this month and expects to end purchases altogether by mid-2022.
Daly, who votes this year on Fed policy, says that uncertainty about how long the pandemic will continue to disrupt the economy makes it difficult to predict how long high inflation will last and how quickly workers sidelined by COVID concerns will return to the labor force.
“Over the next several quarters, as tapering occurs, we will watch how the economy does and see whether inflation eases and workers come back,” she said. “As we get a clearer signal, we will be ready to act accordingly, continuing to provide or remove support as needed to ensure the economy settles at a sustainable place.”
(Reporting by Ann Saphir; Editing by Andrea Ricci)
