SF Fed's Daly: Bond Market Signals Credible Monetary Policy Stance
Nashnova编辑部
San Francisco Fed President Mary Daly said the central bank's credibility is not at risk; the bond sell-off reflects fiscal-deficit and inflation concerns, not a loss of faith in the Fed. Traders now price a September hike at roughly 30%, down from over 70% — expectations are shifting fast.
What challenge is Daly pushing back on?
Two camps are pressing the Fed: one says cut rates pre-emptively, the other says hike now. Daly's answer — neither side has enough evidence.
In a Bloomberg TV interview she was direct: "I don't see credibility at risk."
This means → the Fed's internal center of gravity favors holding steady, with no urgency to move in either direction.
Why are bonds selling off so hard?
Since the July meeting, long-dated Treasuries have been hit by heavy selling. The 30-year yield climbed to its highest since 2007.
In plain terms = investors are signaling two worries with their money: the U.S. government is borrowing too much (fiscal deficit), and prices have stayed above the Fed's 2% target for over five years.
The Treasury announced an expanded long-bond buyback program on Wednesday to push yields down, but the relief lasted only one day — Thursday's session erased the entire post-announcement drop.
How does Daly read the bond-market signal?
She views bond prices as an important policy input, but argues the sell-off does not simply mean "the market has lost trust in the Fed."
She floated another explanation: rising yields may also reflect expectations of growing demand for AI products and infrastructure.
This means → if capital is chasing AI investments, selling bonds for higher returns elsewhere is rational — and that is a different story from losing confidence in the central bank.
How deep is the split inside the Fed?
The July meeting marked the fifth consecutive hold, yet three officials dissented and voted for a hike.
Their logic: without tighter policy, inflation cannot return to the 2% target.
Daly is not a voting member this rotation, but she has previously warned that the risk of inflation becoming broader and more persistent is rising.
Why did the rate-hike probability drop so sharply?
Fresh data released after the July meeting came in soft across the board: June and July inflation cooled, July retail sales fell, and payrolls surprised to the downside.
Traders' implied probability of a September hike plunged from over 70% to roughly 30%.
This reflects a market reassessment: the economy may be cooling faster than the Fed itself expected, and the case for an imminent hike is fading.
Content is for reference only, not financial advice.