San Francisco Federal Reserve President Mary Daly today described U.S. monetary policy as slightly restrictive, but declined to tip her hand on what comes next. Speaking to central bankers in Santander, she framed the outlook as a choice between battling inflation that could prove stubborn and guarding against a slowdown in growth or investment.
Daly's balancing act in Santander
"I think there's a scenario in which we have to fight an inflation that turns out to be more persistent," Daly said at a Banco de España conference, while also warning that investment could slow, as reported by Reuters. She heads the Federal Reserve Bank of San Francisco and contributes to the Fed's policy discussion, according to the Federal Reserve Bank of San Francisco.
Markets, AI and the jobs picture
Investors pared back bets on an immediate rate move and trimmed odds for a September hike as they parsed Daly's caution alongside data and the AI investment boom. OANDA notes that futures pricing and the CME FedWatch Tool have shifted in recent sessions as traders weigh rising AI-driven demand against softer labor-market signals.
The U.S. Bureau of Labor Statistics reported that nonfarm payrolls rose by just 57,000 in June, a clear slowdown that gives policymakers reason to keep their options open. According to the Bureau of Labor Statistics, revisions to prior months also trimmed earlier gains, a development the Fed watches closely when deciding whether to tighten or ease policy.
New chair, familiar tensions
New Federal Reserve Chair Kevin Warsh has underlined the Fed's commitment to restoring price stability and warned he would "disappoint" anyone who expected the central bank to tolerate inflation above its 2% goal, while also noting that AI-related investment is running exceptionally strong and could lift near-term demand. Coverage of Warsh's remarks underscores the same policy tension Daly described, as noted by Fidelity (Reuters).
For Bay Area borrowers and businesses, especially capital-hungry tech firms, Daly's framing means the interest-rate path remains uncertain. Policy is restrictive enough to lean against inflation risks, but not so clearly restrictive that markets can confidently price in near-term cuts. As officials continue to weigh inflation, AI-driven demand and slowing job gains, the Fed's messaging is likely to keep market volatility elevated until a clearer data trend emerges.
