Fed’s Daly says future hikes depend on how the economy handles shocks

Investing.com -- San Francisco Federal Reserve President Mary Daly said Tuesday she supported the September interest-rate increase as inflation risks have risen, but noted future rate decisions will depend on whether current economic shocks prove temporary or persistent.

Daly told Axios that the need for additional rate increases hinges on how tariffs, oil prices related to the Middle East conflict, and artificial intelligence effects unfold. She said if these shocks prove conventional with temporary effects, additional rate hikes may not be necessary.

"If the shocks that we've experienced — tariffs, oil prices from the Middle East conflict, and then AI — if they prove to be conventional shocks where they come, they go, and they have temporary effects, then we may not need more. And I still have some probability on that," Daly said.

She warned that compounding shocks or longer-lasting effects could change the outlook. Daly pointed to the possibility of a second round of tariff negotiations resulting in additional tariffs, which would represent a second shock extending the timeline of economic impacts.

Daly also noted that AI-related demand for chips is increasing and could contribute to inflationary pressures, potentially making the effects of current shocks more persistent.

Daly does not vote on rate-setting this year but participates in the Fed's regular policy debates in Washington.

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