Key facts
- San Francisco Fed 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.
- The number of people reporting they had jobs also fell by around half a million, with the workforce declining by approximately 700,000 in June.
- The unemployment rate fell to 4.2%, largely due to people leaving the labor force rather than increased hiring.
- Fed Chairman Kevin Warsh noted that while productivity is rising, labor market hours worked are flat.
San Francisco Federal Reserve President Mary Daly stated that U.S. monetary policy is 'slightly restrictive,' but uncertainty surrounding AI growth and inflation persistence makes the next step unclear. The labor market's condition is also under renewed debate following a weaker-than-expected jobs report for June.
Daly noted that while investment growth in AI-related technology is strong, the decline in the labor force, partly due to an aging population and immigration policies, presents a complex picture. The unemployment rate fell to 4.2%, but this was driven by approximately 700,000 people leaving the labor market, not by increased hiring. This trend is seen as a discouraging sign for future growth, despite the headline unemployment rate suggesting tighter conditions.
Fed Chairman Kevin Warsh acknowledged that potential growth appears to be trending upward with rising productivity, but labor market hours worked remain flat. He expressed optimism about the impact of artificial intelligence on the economy, noting its potential to boost both demand and supply, but cautioned that it is too soon to determine its policy implications within the next six to nine months.