Daly signals steady Fed stance, sees inflation easing and AI shaping the next phase of policy debate.
Summary:
San Francisco Fed President Mary Daly says policy is “in a good place” after 75bps of rate cuts last year.
Labour market is “in a better place” and more subdued than before.
Inflation is continuing to decline outside the goods sector.
Expects inflation to ease further as tariff effects roll off.
Describes the “last mile” on inflation as challenging due to shocks, including tariffs.
Says AI capex reflects real demand, not speculative excess.
Does not see AI investment generating fresh inflation pressures.
Productivity effects from AI will be central to Fed assessment this year and next.
Daly will be a voting member of the FOMC in 2027.
San Francisco Federal Reserve President Mary Daly said monetary policy is “in a good place” following last year’s cumulative 75 basis points of rate cuts, arguing that the labour market has stabilised and inflation is expected to resume its downward path as tariff effects fade.
Speaking in a live-streamed conversation with former Dallas Fed President Robert Kaplan, Daly said both sides of the Fed’s dual mandate, price stability and full employment, “seem to be in a good place.” She added that the central bank now has room to assess incoming data and evolving structural forces, particularly artificial intelligence and productivity.
Daly noted the labour market is “more subdued than before,” reflecting the impact of earlier policy easing. She credited last year’s rate cuts with helping bring employment conditions into better balance, while also emphasising that the labour market does not always provide clear signals about underlying momentum.
On inflation, Daly said price pressures continue to cool outside the goods sector and that she expects further moderation as the impact of tariffs rolls off. However, she acknowledged that the “last mile” in returning inflation to target has been difficult, citing repeated shocks, including trade-related disruptions, that have complicated progress.
Artificial intelligence and capital spending were also a focus. Daly argued that AI-related investment is supported by genuine demand rather than speculative enthusiasm, saying “it’s not the Field of Dreams.” She added that she does not see AI-driven capex fuelling inflation, particularly given a more tempered labour market backdrop. Instead, the key question for policymakers will be the timing and magnitude of AI’s productivity boost.
“This year and next,” Daly said, assessing how AI affects productivity and demand will be central to the Federal Open Market Committee’s policy deliberations.
While she stressed that “we have more work to do” on inflation, Daly cautioned against overreacting in either direction, saying policymakers must avoid getting “behind” the curve or “over our skis.”
Daly will hold a vote on the Federal Open Market Committee in 2027.
