San Francisco Federal Reserve President Mary Daly stated on Thursday that U.S. monetary policy remains slightly restrictive, but the economic outlook has become increasingly uncertain due to artificial intelligence developments and labor market strength. According to Reuters, Daly spoke at a Banco de España conference in Santander, Spain, highlighting that policymakers are weighing multiple possible economic paths. She noted that inflation could prove more persistent than expected, requiring the Federal Reserve to maintain a tighter policy stance.
Daly emphasized that artificial intelligence is creating significant uncertainty for policymakers as the technology currently boosts investment and demand while potentially improving productivity and expanding supply, producing opposing effects on inflation. As reported by Reuters, she warned that economic growth could weaken if investment slows or businesses fail to realize expected productivity gains from AI. The Fed Chair recently reiterated the central bank's commitment to returning inflation to its 2% target while highlighting AI's transformative economic impact.
Daly's comments came shortly after U.S. Labor Department data showed job growth slowed sharply in June, prompting financial markets to scale back expectations of a Federal Reserve interest rate increase later this month. According to Reuters, the weaker-than-expected employment report also reduced the likelihood of a September hike. Daly pointed to the recent decline in oil prices following the Iran ceasefire as a positive development for consumers and the broader economy, easing some inflationary pressures.
Given the crosscurrents from AI developments and economic uncertainties, Daly indicated that the Federal Reserve should avoid rushing into policy decisions and instead carefully evaluate incoming economic data before adjusting interest rates. Her cautious stance reflects the complex economic landscape created by artificial intelligence investments and their potential long-term effects on productivity and inflation dynamics.
