Fed's Daly says more rate hikes are likely, but not in October

San Francisco Federal Reserve President Mary Daly said Wednesday, October 14, that the Federal Reserve (Fed) will probably need to raise the federal funds rate again, but not at its October 27-28 meeting.

"We are more likely than not to need additional adjustments, but the timing of those adjustments to me is something we're still deliberating," Daly told Reuters. "I don't feel urgent that we have to decide with a limited set of information. I think we have the time that we need."

The Federal Open Market Committee votes on October 28. On October 29, the Bureau of Economic Analysis is due to release September personal income and outlays, including the personal consumption expenditures price index the Fed uses for its 2% goal, and the advance estimate of third-quarter gross domestic product, both at 8:30 a.m. Eastern time.

October's consumer prices are not due until 8:30 a.m. Eastern time on November 10. If the committee does not move on October 28, the next decision is December 8 and 9, the only other meeting in 2026, and by then those reports will be out. That meeting also brings a new set of projections.

The last projections, published September 16, put the appropriate federal funds rate at 4.1% at the end of 2026, above the 3.75% to 4% range the committee set that day. The committee, led by Chairman Kevin Warsh, raised the range by a quarter of a percentage point, and no one dissented.

"Why not take the time to be thoughtful and deliberate? And we have more meetings ahead of us," Daly said.

September's report raised the risk, not a date

The report Daly was answering came Wednesday morning from the Bureau of Labor Statistics. The consumer price index rose 0.6% in September, after 0.4% in August, and was up 3.7% from a year earlier, compared with 3.4% through August.

Gasoline prices rose 9.1% and accounted for more than half of the monthly increase. The energy index rose 5.2%, after 2.1% in August.

Prices excluding food and energy rose 0.3%, the same as in August, and 2.6% over the year, up from 2.4%. The Fed does not use that measure for its 2% goal.

The personal consumption expenditures price index, excluding food and energy, was up 3.0% from a year earlier in August, the same pace as in June and July, 1 percentage point above the 2% goal. September's reading arrives on October 29, after the vote.

"Definitely this data point suggests that the risk to inflation remains elevated," Daly said.

"The risk to inflation has gone up more, but risks are not realities, and reacting on risk when you have time to make a good decision, to me, feels imprudent."

She said the labor market's continued stability gives the Fed room to focus on prices.

Hammack did not endorse an October increase

Reserve bank presidents take turns in four of the voting seats. Those who are not voting still attend and join the discussion. This year Daly is an alternate, and Cleveland Fed President Beth Hammack holds a voting seat.

"When feasible, I generally think it's preferable to make smaller adjustments, and to do so relatively quickly, rather than to wait and risk needing a larger course correction," Hammack said Monday.

She also said that with each passing month, persistently elevated inflation raises the risk that an inflationary mindset becomes entrenched.

Bloomberg reported Monday that she stopped short of backing a rate increase this month.