The US dollar index is trading near 99.70 during Thursday's Asian session, stuck in a narrow range. This sideways movement follows conflicting signals from two senior Federal Reserve officials on Wednesday, which have deepened uncertainty about the central bank's next policy move.
San Francisco Fed President Mary Daly expressed full support for last week's decision to hold rates steady at 3.50%-3.75%, advocating for more data collection before the September meeting to assess the inflation outlook. In contrast, Fed Governor Lisa Cook took a more hawkish stance, stating she is prepared to support a rate hike if inflation remains too high. The divergence between these two voices, combined with three dissenting votes for a rate hike at the last meeting, has made market expectations for the Fed's rate path far more complex.
Speaking at an economic conference in Tokyo, Daly said she has "full support" for the decision to hold rates unchanged. She noted there is "a lot of information we need to gather" before the September meeting to determine whether current inflationary pressures are driven by temporary supply-side shocks that will fade, or whether a more persistent inflation problem is taking hold. She emphasized the Fed should "stay vigilant, watch the data closely, and be prepared to act if necessary." Daly sees "good reason" to believe supply-side shocks affecting the US economy will not have a lasting impact on inflation, arguing that businesses currently have limited pricing power to pass on higher input costs. She also highlighted that consumers are highly sensitive to oil prices, and an end to the Middle East conflict should weaken this factor's contribution to inflation. Daly expressed concern about how the public might react to a new wave of inflation shocks and warned that if inflation momentum picks up again, the Fed may need to take aggressive action. Daly is not currently a voting member of the Federal Open Market Committee.
In stark contrast to Daly's wait-and-see posture, Fed Governor Cook delivered a more hawkish message in a speech in Alaska. She explicitly stated that if US inflation remains too high, she is prepared to support raising short-term interest rate targets. "If inflation does not begin to come down, I am prepared to act if necessary by raising rates to address it," Cook said. She noted that, regarding the Fed's dual mandate, the risks to inflation are greater than those to the labor market. While she would support a rate hike if needed to bring inflation down, she also emphasized that "it may not be necessary." Cook warned that after inflation has been above the 2% target for so long, the Fed's policy space to address it is shrinking. There is a risk that inflation could become entrenched in corporate pricing and wage-setting behavior, creating more persistent pressure that would be harder to tackle. "This is a different environment where we don't have the luxury to wait longer," she stated. Cook was also among the officials who supported holding rates steady last week, but she said that was "appropriate" while observing how inflation trends develop. She acknowledged that factors pushing inflation higher, such as tariffs, Middle East tensions, and AI-related investment, may ease in the future, but stressed, "I am firmly committed to restoring price stability."
The FOMC voted 9-3 last week to keep the policy rate target range at 3.50%-3.75%, with three policymakers advocating for an immediate rate hike to curb inflation. In recent days, other officials, including New York Fed President John Williams and Philadelphia Fed President Patrick Harker, have also indicated they are willing to support rate hikes if necessary. Against this backdrop, Fed Chair Jeremy Walsh has consistently refused to offer guidance on the future path of interest rates and has provided few comments on how monetary policy decisions will be made. This pattern of a silent chair and vocal officials is amplifying market uncertainty about the Fed's internal policy direction.
The widening internal rift at the Fed, coupled with the chair's silence, is injecting uncertainty into the dollar's short-term outlook. Without clear directional guidance from the central bank, the dollar's trading logic is becoming more dependent on economic data itself. If upcoming data shows inflation remaining above target and the labor market staying strong, the hawkish argument will gain the upper hand, providing support for the dollar. Conversely, if inflation moderates, the wait-and-see camp's view will be validated, potentially putting modest downward pressure on the greenback. The dollar index is currently trading near 99.70, lacking the momentum for a clear breakout. The market is waiting for more definitive inflation signals or geopolitical developments to break the stalemate. In the near term, the dollar index is expected to remain range-bound, with each major data release before the September FOMC meeting potentially acting as a catalyst for a directional shift.
The latest statements from Daly and Cook highlight the split within the FOMC on the policy path. Daly advocates for patience and more data collection before September to assess whether inflation is a supply-side shock or a persistent issue. Cook, on the other hand, warns she is ready to support a rate hike if inflation does not decline. With three policymakers already voting against keeping rates unchanged, and recent hawkish comments from Williams and Harker, the Fed's policy balance is becoming more complex. Against the backdrop of Chair Walsh's silence, market expectations for whether the September meeting will bring a rate hike, a cut, or no change will be highly dependent on inflation and employment data in the coming weeks. The tension between Daly's "prepared to act" and Cook's "raise rates if necessary" remains the core suspense surrounding the Fed's policy path.
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