San Francisco Federal Reserve President Mary Daly told a Banco de España conference in Santander, Spain, that U.S. monetary policy remains slightly restrictive. She explained that strong investment growth in artificial intelligence technology and a stable labor market create uncertainty about the next policy move. Daly outlined two possible scenarios: one where inflation proves more persistent than expected, and another where economic growth falters or investment slows because of return concerns.
She highlighted that the recent drop in oil prices following the Iran war ceasefire is positive for both the broader economy and consumers. Concurrently, the U.S. Bureau of Labor Statistics released data showing that job growth slowed sharply in the most recent month, indicating a weakening labor market.
Following Daly’s remarks, traders reduced expectations for a Federal Reserve rate increase in both July and September, reflecting the perception that policy may stay restrictive for longer. Daly also referenced her attendance at a global central‑banking conference in Sintra, Portugal, where Fed Chairman Kevin Warsh warned that he would disappoint anyone expecting the Fed to fail in containing inflation, which has stayed above the 2% target for six years. Warsh emphasized that artificial intelligence is currently boosting demand but is expected to eventually increase supply, creating opposing forces on inflation. Daly reiterated that uncertainty about AI’s economic impact prevents her from making a swift interest‑rate decision.