Fed Daly eyes fall for possible policy shift

Investing.com -- San Francisco Federal Reserve President Mary Daly voiced a cautiously optimistic outlook for monetary policy and economic conditions in a wide-ranging interview on CNBC, citing signs of balanced progress on both inflation and employment. While acknowledging the potential inflationary effects from tariffs and geopolitical uncertainty, Daly affirmed that “the economy remains in a good place, and policies in a good place.”

The May inflation report offered encouragement, according to Daly, particularly in the housing and services sectors, where price moderation has continued. “The May data just confirmed an ongoing pattern… we saw inflation continue to come down,” she said, calling the developments “great news, both for our inflation mandate, but also for American families.”

Daly outlined three scenarios for how inflation might evolve during the summer, ranging from a delayed spike to muted pass-through effects due to corporate mitigation strategies. “We’re just going to have to wait and see and collect more information,” she noted, adding that feedback from national businesses showed “a little more optimism, cautious optimism.”

Asked about the likelihood of a rate cut in July, Daly signaled a preference for a more patient approach, saying, “For me, I look more to the fall, and by then we’ll have quite a bit more information.” She emphasized that unless the labor market saw meaningful and persistent weakening, immediate easing would be unlikely.

On labor availability, Daly said wage growth has remained consistent with long-run economic fundamentals, and firms report improving conditions for hiring. “Right now, we haven’t seen a broad impact… firms are telling me that they have an easier time finding workers today than they did just last year.”

Artificial intelligence, another emerging economic variable, has yet to disrupt job markets in a material way, according to Daly’s discussions with business leaders. “They repeat to us that this is not a way to reduce their payrolls as much as… to augment their payrolls,” she said, noting that employers are using AI to increase productivity rather than cut staff.

Daly was measured in her assessment of using tariffs as a rationale for policy shifts, saying, “I never trust just the theory. There’s really three things you have to look at: the theory helps us, history also helps us, and then you have to talk to people.”

While confident in current policy settings, Daly warned against complacency amid labor market softening, saying, “If you ask me where we are in the labor market, I would say we’re at a point where additional softening could easily turn into weakening, which I don’t want to see.” She cautioned against policy inaction based on inflation fears that may never materialize.

This article first appeared in Investing.com