Fed's Daly says more rate hikes may be needed but sees no urgency to act now

San Francisco Federal Reserve President Mary Daly said additional interest rate hikes may be necessary but saw no reason to rush at this month's policy meeting, even as US consumer prices for September came in above market expectations and reignited rate-hike concerns.

Speaking to Reuters on Wednesday (local time), Daly said the Fed would more likely need to make further rate adjustments to bring down persistently high inflation, but added that she personally felt the timing warranted more deliberation.

"I don't feel the urgency to adjust rates with only limited information," she said. "We have the time we need."

The remarks align with a cautious camp within the Fed that favors holding rates steady at the FOMC's regular meeting on Oct. 27-28 and gathering more data on inflation and economic conditions before acting. The Fed's current benchmark interest rate stands at 3.75 to 4.00 percent annually.

Daly's comments came shortly after the September consumer price index was released that day. According to the US Department of Labor, the September CPI rose 3.7 percent from a year earlier, topping the market forecast of 3.6 percent. On a monthly basis, prices climbed 0.6 percent — the largest monthly gain in five months.

Financial markets reacted swiftly to the data, with tightening fears intensifying. The probability of a rate hike in October, as reflected in the CME Group's FedWatch tool, soared from 22.1 percent before the release to as high as 51.5 percent.

Daly said market reaction calmed as investors took a closer look at the details of the report. She noted that the latest price surge was driven largely by a spike in gasoline prices, and that core inflation — which strips out food and energy — remained elevated but had not re-accelerated.

Gasoline prices jumped 9.1 percent in September from the prior month, accounting for more than half of the overall CPI increase. Core CPI rose 2.6 percent year-on-year and 0.3 percent from the previous month.

"The CPI data clearly show that inflation risks remain high," Daly said. "It is wise to take time and make careful judgments. We have many more meetings ahead of us."

Rising market interest rates, which are already constraining economic activity, could also factor into the Fed's deliberations. As long-term borrowing costs in the United States have climbed, mortgage rates have soared to around 7.5 percent, weighing on the housing market and consumer demand.

The Fed raised its benchmark interest rate by 0.25 percentage point last month. Fed officials have recently signaled caution about consecutive rate hikes, even as they remain on alert for inflation risks.

Daly, too, did not rule out further tightening, but stressed that the Fed has time to assess more economic data rather than move immediately at this month's FOMC meeting.