Fed’s Daly Notes Fading Tariff Impact While Warning of Broader Inflation Risks
- Daly backs Fed rate hold; sees fading tariff, rising tech inflation.
- Daly warns Fed ready to act aggressively if inflation builds.
- Daly notes limited business pricing power, long-run inflation expectations stable.
- Daly in Tokyo: Geopolitics could ease inflation, no imminent easing signal.
Federal Reserve Bank of San Francisco President Mary Daly stated on Thursday that while there are early signs the impact of tariffs on inflation is beginning to fade, she also highlighted that technology spending is contributing to upward price pressures. Daly noted that a resolution to the Middle East conflict could help alleviate inflation, linking geopolitical developments to monetary policy. Despite supporting the central bank’s recent decision to keep interest rates on hold, she cautioned that elevated inflation might be a broader issue, potentially necessitating more assertive policy responses from officials. She also suggested that supply shocks might lead to temporary inflation surges, but there are reasons to expect they won’t have a lasting impact, and the job market is unlikely to spark significant inflation.
Federal Reserve Bank of San Francisco President Mary Daly fully endorsed the decision to hold interest rates steady at the July FOMC meeting, clarifying that her earlier remarks on fading tariff effects and a potential Middle East resolution should not be interpreted as signaling imminent easing. Daly explicitly warned the Fed would act aggressively if inflation momentum appears to be building, while also noting that businesses currently have limited pricing power to pass on higher costs. Speaking in Tokyo, Daly stated the Fed needs to guard against inflation ‘drift’ but added that the “alarm bell” is not yet sounding off on longer-run inflation expectations.