San Francisco Fed President Mary Daly said there are growing reasons to believe inflation will moderate without additional monetary tightening, arguing that businesses are finding it increasingly difficult to pass higher costs on to consumers. Speaking at an economics conference in Tokyo, Daly said she was “completely supportive” of last week’s decision to keep interest rates unchanged, stressing that policymakers still need more evidence before deciding whether inflation is being driven by temporary supply shocks or more persistent forces. “We have a lot of information we need to collect” ahead of the September FOMC meeting, she said.
Daly pointed to several factors that could help ease inflation in the months ahead. Most notably, she argued that businesses now have “limited pricing power” and will struggle to pass rising input costs through to customers. She also said there are “good reasons” to believe the supply-driven shocks that have fueled inflation “will not have a lasting impact,” adding that an eventual end to the Middle East conflict should lower oil prices and reduce one of the public’s biggest inflation concerns. Together, those developments support the case for allowing more time to assess incoming data before adjusting policy.
Even so, Daly emphasized that patience should not be mistaken for complacency. She warned the Fed must remain “vigilant to watch the information as it comes in, but be very prepared to take action” if inflation proves more persistent than expected. While she acknowledged concerns that renewed inflation could become embedded in public expectations, her remarks place her firmly among the policymakers who believe the current evidence still justifies waiting rather than preemptively raising interest rates.
Key Takeaways
- San Francisco Fed President Mary Daly fully supported last week’s decision to keep interest rates unchanged, saying policymakers need more data before deciding whether inflation pressures are temporary or persistent.
- Daly argued that businesses now have limited ability to pass higher costs on to consumers, suggesting pricing power is weakening and inflation could moderate without additional tightening.
- She also cited three supportive factors for disinflation: fading supply shocks, the prospect of lower oil prices if Middle East tensions ease, and consumers’ sensitivity to energy prices.
- Despite her relatively optimistic outlook, Daly stressed the Fed must remain “vigilant” and “be very prepared to take action” if inflation momentum begins building again.
- Her comments place her firmly in the Fed’s wait-and-see majority, contrasting with officials who have recently advocated resuming rate hikes immediately.
