Fed has time to calibrate rate hikes, Daly says
TLT•San Francisco Fed President Mary Daly said further rate hikes will likely be needed to address elevated inflation, but rising bond yields give policymakers more time to decide how much and when to tighten. She said AI could become disinflationary in coming years if it boosts productivity.
1. Further tightening likely
Daly said her bias is that further tightening will be needed because inflation pressures are spreading beyond energy and goods into services. She described the labor market as stable and growth as good, but said the U.S. has an inflation problem.
2. Yields allow more time
Rising bond yields and tighter financial conditions give the Fed more time to make calibrated decisions, Daly said. She said policymakers have many more pieces of data to weigh before deciding how much and when to tighten.
3. AI and productivity
Daly said AI is not having an outsized impact on inflation or the labor market now, but could do so in the next few years if it raises productivity growth. She also pointed to investment in AI-related capital projects such as data centers.
