Daly: Inflation Should Ease but Uncertainty Remains High
Miles Bennett
San Francisco Fed President Mary Daly called current policy 'modestly restrictive' and said inflation should fall, but tariff shocks and oil-price swings leave the outlook highly uncertain — the Fed may need to respond more forcefully to persistent price pressure.
How high is inflation — and why hasn't it come down?
The Fed's preferred gauge — the PCE price index (a broad measure of what U.S. consumers actually pay) — rose 4.1% year-on-year through May, the highest since April 2023.
This means → inflation has run above the Fed's 2% target for more than five straight years — nowhere near "mission accomplished."
Daly blamed the spring flare-up on two forces: tariff shocks and oil-price spikes after the U.S.–Iran war.
Oil fell sharply after the ceasefire; she called that a source of "hope" — but hope, not certainty.
What is the jobs market signaling?
June payrolls data, released the same day, showed hiring slowed markedly; leisure and hospitality posted its steepest drop since 2020.
In plain terms = businesses are pulling back on hiring, especially in consumer-facing sectors.
Daly did not comment directly, but a cooling labor market gives the Fed room to hold rates steady — a watching window, not a mandate to act.
Where does the Fed stand internally?
Last month's meeting held rates unchanged, but the dot plot — the anonymous rate-path forecasts of each policymaker — sent a hawkish signal.
Nine of 18 officials projected at least one rate hike this year.
This means → more than half the committee is on inflation alert; standing pat is a temporary balance, not a consensus.
What is Daly's own stance?
She described current policy as "modestly restrictive" and said inflation should ease under that pressure.
But she stressed "uncertainty" repeatedly — the economy faces multiple plausible scenarios, each requiring a different policy response.
Her communication approach: no specific forward guidance, only the Fed's "reaction function" — adjust as the data evolve, rather than pre-committing to a path.
The Fed is reviewing itself — where's the red line?
New Chair Kevin Warsh has set up several working groups since taking over in May, examining the Fed's operations, decision-making process, and data tools.
Daly voiced support but drew a firm line: the dual mandate — maximum employment and price stability — is not up for change.
In plain terms = the methods can evolve, but the goals stay fixed — in her words: "We will not move the goalposts."
We will not move the goalposts, but we will keep studying, keep evolving, and be better tomorrow than we are today.
Mary Daly
San Francisco Fed President
(Santander, Spain — Bank of Spain event)
What to watch next?
Multiple uncertainties stack up — tariff effects linger, oil prices remain volatile, hiring is cooling, and internal views are split.
This means → the Fed's next policy meeting becomes a pivotal checkpoint: hold steady, or hike to fight inflation.
For markets, the core variable is singular: will inflation actually fall, as Daly expects?
Content is for reference only, not financial advice.