Daly: Fed Likely Needs More Rate Hikes to Tame Inflation

Mary Daly isn't ready to call it a day on rate hikes. The San Francisco Fed president said Friday the central bank will likely need to tighten policy further to wrangle inflation. She told CNBC's Steve Liesman that 'more is likely to be needed,' though the exact timing and size are still up in the air. 'I'm prepared to do that if that's what the economy calls for,' Daly said.

Her comments dropped the same day the Bureau of Labor Statistics served up a surprisingly hot jobs report. The U.S. economy added 165,000 jobs in October, and the unemployment rate ticked down to 4.1%. That crushed Wall Street expectations — job creation was nearly triple the Dow Jones consensus estimate. Daly called the report 'good news for American workers.'

But here's the rub: inflation is still eating into paychecks. Average hourly earnings rose 3.1% annually in October, while the September consumer price index showed inflation running at 3.7%. So real wages are falling. Daly said Americans are on a 'treadmill of high inflation' that's been running hot for almost six years. 'We're really starting to feel the burden of that spread everywhere,' she said.

The Fed has been trying to cool things down. In September, the Federal Open Market Committee raised its benchmark overnight borrowing rate by a quarter percentage point to a target range of 3.75%-4%. Last week, the committee held steady, saying it wanted to wait for 'the accumulation of more information.' Daly, who will vote on the committee next year, still favors a gradual approach. Richmond Fed President Thomas Barkin said Thursday he also sees higher rates ahead, but he's unsure of the timeline, according to CNBC.

Daly isn't worried about economic growth — she's worried about inflation that just won't quit. She described the job market as 'stable and solid, but not booming,' and pointed out that real wages are falling because pay isn't keeping up with prices. 'Good news on the jobs front, not so clear that Americans are going to gain ground in the labor market,' she said. She supported the September hike and the decision to hold last week, calling the latter a good move because 'the world is filled with uncertainty.'