Fed’s San Francisco President Mary Daly on Treasury Market Signals
In a Bloomberg Television interview, Federal Reserve Bank of San Francisco President Mary Daly asserted that the U.S. Treasury market indicates monetary policy is currently well‑positioned. She emphasized that the Fed’s credibility is not at risk and she does not see an urgent need for pre‑emptive rate cuts or hikes.
Bond Market Activity Since July Meeting
Following the Federal Open Market Committee meeting in July, where officials kept the policy rate unchanged for the fifth consecutive meeting, bond investors have increased selling activity. The selling pressure has been most pronounced in longer‑dated securities, driving 30‑year Treasury yields to their highest levels since 2007. This market reaction reflects concerns about the U.S. budget deficit and inflation that has remained above the Fed’s 2 % target for more than five years.
Treasury Buyback Announcement
The Treasury Department announced on Wednesday a plan to increase buybacks of longer‑dated debt. The initial effect appeared to lower long‑term yields, but those gains were largely reversed on Thursday. Daly declined to comment on the Treasury’s actions.
Policy Signals from Bond Prices
Daly noted that bond prices provide important signals for monetary policy and may also reflect heightened demand for artificial‑intelligence products and infrastructure spending.
Dissent Within the Fed
Three policymakers dissented at the July meeting, preferring to raise interest rates because they feared inflation would not return to the 2 % target without tighter policy.
Recent Economic Data Reducing Rate‑Hike Pressure
New data released after the July meeting have eased pressure on the Fed. Inflation readings for June and July showed moderated price growth, while retail sales fell in July and employers unexpectedly cut jobs. Consequently, traders now assign roughly a 30 % probability to a rate hike in September, down from a probability that topped 70 % at the end of July.
Market Expectation Summary
Overall, Daly’s comments suggest that, despite recent bond‑market volatility and lingering inflation concerns, the Federal Reserve does not view immediate policy tightening as necessary, and market expectations for a September rate increase have fallen sharply.