San Francisco Fed President Mary Daly said on the 6th that the case for further rate hikes will depend heavily on whether the shocks that have been pushing inflation higher move toward resolution or, conversely, compound one another and persist. In an interview with Axios, Daly explained that she supported a rate hike at the September Federal Open Market Committee meeting in light of rising inflation risks. She added that if tariff measures, the surge in crude oil prices tied to Middle East conflicts, and artificial intelligence turn out to be conventional shocks with only temporary effects, further rate hikes may not be necessary, and she said she still assigns some probability to that outcome. On the other hand, she said that if these shocks create compounding effects or last longer than expected, additional tariffs imposed in a second round of tariff negotiations could layer a second shock on top of the first and prolong the period of impact. She also said that rising demand for AI-related semiconductors could add to inflation pressures and make the effects of the shocks longer lasting. Daly does not hold a vote on this year's Federal Open Market Committee.
Daly says further rate hikes depend on whether inflation shocks resolve or compound, keeping the policy rate path open to additional hikes.
Prospect of further Fed rate hikes and persistent inflation shocks pushes 10-year Treasury yields higher.
