Daly Sees Potential Need for Rate Hike as US Inflation Concerns Mount

Key Facts

Mary Daly, president of the Federal Reserve Bank of San Francisco, said on November 13 that her bias was that interest rates may need to rise, amid concerns that inflation is persisting and warning signs from producers. She said she would discuss the possibility with colleagues at the Federal Open Market Committee meeting in December and at subsequent meetings. The decision will be made collectively in light of how the economy evolves, meaning her comments on a possible policy direction do not settle the timing of any increase. “I’ll be discussing that with my colleagues at our December meeting,” Daly said. The December meeting makes available data and the committee’s assessment of the path of prices and spending central to the coming debate.

Daly’s concern was based on services inflation excluding housing, which she said “is not moving in the right direction.” She noted that this component tends to persist, keeping it under close watch by policymakers. She linked that concern to signals from producers, saying they are seeing their ability to absorb costs in their margins diminish. “They’re running out of room to absorb it in their margins,” she added. That could lead companies to pass more costs on to consumers, according to her warning. This channel between producer costs and consumer prices puts price pressures in services and goods among the reasons for her bias toward tighter policy.

Bureau of Labor Statistics data showed the producer price index for final demand rose 0.3% in October 2026, after increases of 1.4% in September and 0.4% in August. On an annual basis, the index rose 6.5% in the twelve months ended in October, its largest increase since November 2022, when it rose 7.4%. In October, prices for final-demand goods rose 0.5%, while prices for services increased 0.2%. The readings indicate that monthly producer price increases slowed from September, but the annual increase remained strong. The figures provide context for Daly’s warning that companies have less ability to keep costs out of the prices consumers pay.

In another price measure, the US consumer price index rose 0.4% in October, while the index excluding food and energy increased 0.3% during the month. The annual change in the October index was not published, after October 2025 data were unavailable because of the lapse in appropriations. Meanwhile, on October 28 the Federal Reserve left its target interest-rate range unchanged at 3-3/4 to 4%. The statement was approved by a 10-to-2 vote, with the two dissenting members favoring a 1/4 percentage-point increase in the range. The committee’s statement said inflation remained elevated and that it was monitoring data to return to its 2% target, showing that disagreement over tighter policy was already present within the committee before Daly’s November comments.

Daly said consumer spending had remained “surprisingly resilient,” but she is watching whether consumers will continue spending as prices rise during the holiday season. Spending behavior is another factor in assessing the path of inflation, alongside services prices and the costs companies may pass on to consumers. According to an Associated Press report, markets widely expected a rate increase at the December meeting, with the possibility of another increase in January. In the bond market, the yield on US two-year notes rose to 4.87% on November 13 from 4.86% at the close on November 12, while the yield on 10-year notes climbed to 5.15% from 5.10%. The moves coincided with the rate-hike expectations cited in the report, while Daly kept the committee’s decision tied to how the economy evolves.

The Federal Open Market Committee is scheduled to meet on December 8 and 9, 2026, with the news conference set for December 9. November inflation data will be released after the meeting: the Bureau of Labor Statistics scheduled the consumer price index release for December 10 and the producer price index release for December 15. Those readings therefore will not be among the data published before the committee meeting, while Daly will monitor consumer spending during the holiday season. She said the discussion of raising rates would extend to the December meeting and subsequent meetings, and that the decision would be made collectively based on developments in the economy. Her comments remain a signal of her bias toward higher rates, not an announcement of a settled decision at any particular meeting.