Key facts
- San Francisco Federal Reserve President Mary Daly described U.S. monetary policy as "slightly restrictive."
- Daly cited strong AI-related investment growth and a stable labor market as factors contributing to uncertainty about the Fed's next move.
- She acknowledged the possibility of inflation proving more persistent.
- The U.S. Bureau of Labor Statistics reported a significant slowdown in job growth last month.
- Traders reacted by reducing bets on upcoming Fed rate hikes.
San Francisco Federal Reserve President Mary Daly stated on Thursday that U.S. monetary policy is "slightly restrictive," but expressed uncertainty regarding the Federal Reserve's next steps. Daly noted that "exceedingly strong" investment growth in AI-related technology and a stable labor market create a complex environment for decision-making.
Speaking at a conference in Spain, Daly outlined scenarios where persistent inflation might require further action, while also considering possibilities of slowing growth or investment due to unproven gains. She highlighted the positive impact of falling oil prices on consumers and the broader economy.
Daly's remarks followed the release of data showing a sharp slowdown in U.S. job growth last month, prompting traders to scale back expectations for immediate Fed rate hikes. She also referenced discussions at a global central banking conference in Portugal, where Fed Chairman Kevin Warsh emphasized the central bank's commitment to controlling inflation, which has been above the Fed's 2% target for six years.
Warsh also pointed to the significant, yet uncertain, impact of artificial intelligence on the economy, noting its potential to boost both demand and supply, thereby influencing inflation in opposing ways. Daly indicated that this uncertainty surrounding AI's economic effects makes her hesitant to rush interest rate decisions, advocating for careful assessment before acting.