Fed's Daly Backs July Rate Hold, Stresses Need for More Data Before September Decision
Key Takeaways
- •San Francisco Fed President Mary Daly fully endorsed the FOMC's July decision to hold the federal funds rate steady in a range of 3.5% to 3.75%.
- •Daly stated that policymakers need to collect significant economic data before the September meeting to distinguish between transitory supply shocks and a lasting inflationary trend.
- •Three FOMC officials dissented at the July meeting in favor of raising rates, underscoring deep internal disagreement over the appropriate policy path.
- •Daly indicated the Fed could respond more aggressively if evidence emerges that inflation momentum is rebuilding, while noting that limited business pricing power may help contain broader price pressures.
- •Daly previously noted that tariff-driven inflation effects are fading, while artificial intelligence-related technology investment is currently contributing to upward inflation pressure.
Federal Reserve Bank of San Francisco President Mary Daly said Wednesday she was "completely supportive" of the central bank's decision to hold interest rates steady at last week's July Federal Open Market Committee meeting, even as inflation remains well above the Fed's 2% target. Speaking at an economics conference in Tokyo, Daly argued that policymakers still need more information before deciding on their next move.
Daly said the Fed has "a lot of information we need to collect" ahead of its September policy meeting to determine whether current inflation reflects supply shocks that will fade over time or whether a more lasting inflationary trend is taking hold. The weeks between the July and September meetings will bring fresh readings on consumer and producer prices, employment, and economic growth — data that could prove decisive in shaping the committee's next vote. She urged the central bank to remain "vigilant to watch the information as it comes in, but be very prepared to take action" if the data warrants it.
The FOMC voted last week to hold its federal funds rate target steady in a range of 3.5% to 3.75%, amid ongoing concern over elevated price pressures. Three officials dissented in favour of a rate hike, citing persistently high inflation — a level of dissent that highlights the breadth of disagreement within the committee over the appropriate path forward. In the days since the meeting, several other Fed officials have argued the central bank needs to remain open to raising rates or should move to lift short-term borrowing costs to bring inflation back toward target.
Daly acknowledged concerns about how the public might react to another period of renewed inflation. She said that if it became apparent inflation momentum was building again, the Fed may need to respond more aggressively to bring price pressures back down to target. Her comments underline that while she supports the current wait-and-see approach, she is not ruling out a more forceful response if conditions deteriorate.
At the same time, Daly said there are "good reasons" to believe the supply-driven shocks that have affected the US economy will not have a lasting impact on inflation. She pointed to businesses currently having limited pricing power, meaning many companies are struggling to pass higher input costs on to consumers — a dynamic that could help contain broader price pressures.
Daly also noted that consumers remain highly focused on oil prices when forming their views on inflation, and suggested that an end to the war in the Middle East should help reduce that particular source of price pressure going forward.
Her remarks add further detail to comments she made earlier in the week, when she said tariffs have had a clear impact on inflation but that this effect is beginning to fade, and that technology investment tied to artificial intelligence is currently helping to push inflation higher.
Taken together, Daly's comments this week portray a Fed official who supports patience for now while keeping open the possibility of more decisive action should the balance of these competing inflation forces shift. With three officials already dissenting in favour of hikes at the July meeting, her remarks reinforce the picture of a genuinely divided committee heading into September.
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