Federal Reserve: Another vote for holding rates steady in October; Daly says there is enough time to make the right decision

According to Zhihui Finance APP, Mary Daly, President of the San Francisco Federal Reserve, said on Wednesday that the Federal Reserve may need to raise short-term interest rates further to curb excessive inflation, but she hinted that there is no need to do so at the Fed's meeting on October 27–28.

In an interview, Daly said, "We are more likely to need to make further adjustments, but for me, the timing of these adjustments is still an issue we are considering," "I don't feel an urgent need to make decisions with limited information. I think we have the time we need."

In recent weeks, several of Daly's colleagues have also indicated that the Fed is unlikely to raise rates this month. The Fed’s policy rate is currently in the 3.75% to 4.00% range. Long-term borrowing costs are even higher, some—such as the 7.5% mortgage rate—are suppressing demand in certain areas of the economy.

Daly said that she believes financial markets understand the Fed's "reaction function", noting that traders responded to data released earlier on Wednesday showing consumer price inflation accelerated to 3.7% in the 12 months to September, slightly faster than economists expected. The Fed's target is to achieve 2% inflation according to another, different but related, indicator.

She said that although the initial reaction was "strong"—with interest rate futures traders quickly betting on a Fed rate hike in October—investors "calmed down" after analyzing the data. Rising gasoline prices drove the overall increase, while underlying inflation, though still sticky, did not rise sharply.

"This data point does indicate that inflation risks remain elevated," Daly said. "Inflation risks have risen again, but risk is not reality, and in a situation where there is time to make the right decision, reacting based on risk alone is, in my view, not prudent."

Daly said the continued stability of the labor market gives the Fed room to focus on price stability.

But she said, "Why impose urgency when urgency is not required? Why not take time to think carefully and consider things calmly? And we still have more meetings ahead."

Current financial market pricing shows about a 40% chance that the Fed will raise rates for a second consecutive meeting next time, higher than before the data release, but no longer viewing a rate hike as the most likely outcome as was the case shortly after the inflation report was released.

She said that the market "understands that we are committed to price stability and will do whatever it takes to achieve this goal."

Policymakers "have a responsibility to communicate effectively with the public, to be accountable, transparent, and clear," she said. "The responsibility is to make it very clear to people what your goals are, why you're in charge, and how you will balance these risks."