San Francisco Federal Reserve President Mary Daly stated on Thursday that current U.S. monetary policy is “slightly restrictive,” adding that the central bank’s next course of action remains uncertain. Speaking at a virtual event hosted by the Economic Club of New York, Daly cited strong investment in artificial intelligence and a stable labor market as key factors complicating future policy decisions.
The Federal Reserve has maintained its benchmark federal funds rate in a target range of 5.25% to 5.50% since July 2023, the highest level in over two decades. This policy is part of the Federal Open Market Committee’s (FOMC) effort to bring inflation down to its 2% target.
During the discussion, Daly characterized the current policy stance as exerting a modest downward pressure on the economy. She noted, however, that the path forward for interest rates is not predetermined.
“I see policy as being slightly restrictive,” Daly said. She elaborated on the complexity facing policymakers by pointing to conflicting economic signals.
Daly highlighted what she described as “exceedingly strong” growth in investment related to artificial intelligence. While such investment can boost economic productivity, its full impact on inflation and growth is not yet clear. This introduces a new variable for the central bank as it assesses the economic outlook.
In addition to technology investment, Daly pointed to the continued strength of the U.S. labor market as a significant consideration. The Fed has a dual mandate from Congress to promote maximum employment and stable prices. A resilient labor market supports the employment side of the mandate but can also contribute to consumer demand that may sustain inflationary pressures.
Her comments reflect the broader position of the Federal Reserve, which has emphasized a “data-dependent” approach to monetary policy. Officials have repeatedly stated they need to see more consistent evidence of cooling inflation before considering a reduction in interest rates.
Daly did not indicate a preference for raising, lowering, or holding interest rates at the FOMC’s next meeting. Her remarks underscore the caution among Fed officials as they navigate the final stages of their campaign against high inflation while monitoring the economy for signs of a significant slowdown.
