Fed's Daly says US policy 'slightly restrictive,' next step uncertain
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San Francisco Federal Reserve Bank President Mary Daly speaks during an interview with Reuters at the Federal Reserve Bank building in San Francisco, California, U.S., April 9, 2026. REUTERS/Carlos Barria
By Ann Saphir
July 2 (Reuters) - San Francisco Federal Reserve President Mary Daly said on Thursday that U.S. monetary policy is "slightly restrictive" but that with "exceedingly strong" investment growth in AI-related technology and a stable labor market it's unclear what the Fed's next step should be.
"I think there's a scenario where we have to fight inflation that turns out to be more persistent," Daly said at a Banco de España conference in Santander, Spain, noting that the drop in oil prices since the Iran war ceasefire is good news for the economy and the consumer. "There's also a scenario where the growth just doesn't continue to sustain itself ... or the investment slows because people are worried they haven't seen the gains yet."
Daly spoke as the U.S. Bureau of Labor Statistics released data showing U.S. job growth slowed sharply last month. Traders reacted by exiting bets on a Fed rate hike later this month and reducing bets on a rate hike in September.
Daly had just participated in a global central banking conference in Sintra, Portugal where Fed Chairman Kevin Warsh promised he would "disappoint" anyone who expected the U.S. central bank to fail to contain inflation, now in its sixth year of running above the Fed's 2% target.
At the same time he emphasized the huge impact AI is already having on the economy, in the near term pushing up on demand but at some point also driving up supply, forces that act in opposite ways on inflation.
Daly said the uncertainty around AI's impact on the economy holds her back from rushing on an interest rate decision.
"You don't want to react quickly when the world is changing quickly," she said Thursday. "You want to assess before you jump or act because you'll make better decisions."
(Reporting by Ann Saphir, Editing by Louise Heavens and Chizu Nomiyama )
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