San Francisco Federal Reserve Bank President Mary Daly stated on Thursday that current U.S. monetary policy is in a "good place." However, given significant ongoing uncertainty in the economic outlook, the Federal Reserve will refrain from providing explicit forward guidance on the future path of interest rates and will instead adjust policy flexibly based on incoming economic data.
Daly emphasized that the Fed is prepared to respond to a variety of economic scenarios and will take appropriate measures regardless of how conditions evolve. "We are prepared to respond as the economy evolves," Daly said. "Providing more forward guidance on the future path of rates right now could ultimately be misleading, because we have to wait for the data to evolve further."
Markets widely anticipate that the Fed will keep interest rates unchanged at its policy meeting scheduled for June 16-17. This will be the first monetary policy meeting under new Fed Chair Kevin Warsh.
Persistent tensions in the Middle East have recently driven up energy prices, with the impact gradually spreading to other commodity sectors. In addition to rising crude oil prices, costs for goods such as fertilizers and industrial equipment have also been affected, further heightening market concerns about a resurgence of inflation.
Data shows that the Personal Consumption Expenditures (PCE) price index, the Fed's preferred inflation gauge, rose 3.8% year-over-year in April, marking the largest increase since 2023. Concurrently, the U.S. labor market has remained relatively stable, with the unemployment rate hovering around 4.3%.
Against this backdrop, a growing number of Fed officials have begun emphasizing the two-way openness of policy options, meaning future moves could involve either rate cuts or rate hikes. The recently released minutes from the April meeting indicated that a majority of policymakers believe the Fed may need to consider further tightening monetary policy if inflation persists above the 2% target.
Officials including Fed Governor Waller and Cook have recently stated publicly that future rate hikes remain a possibility. Influenced by these developments, the federal funds futures market has begun pricing in the possibility of a rate hike within the year, with investor expectations for the Fed restarting a tightening cycle noticeably heating up.
Beyond monetary policy, Daly also commented on the impact of artificial intelligence (AI) on the U.S. economy. She noted that official economic data has not yet shown clear evidence of widespread productivity gains from AI, but she remains optimistic about the technology's long-term prospects.
"We haven't seen broad-based productivity growth yet," Daly said. "The return on investment for firms using AI still needs further validation, but the enthusiasm for this technology among businesses is very high."
She pointed out that a growing number of companies are beginning to see initial benefits from AI, and 2027 could be a pivotal year for testing whether AI can genuinely drive productivity gains. "I'm pretty optimistic about AI," Daly stated. "I see tremendous potential in it, and I'm increasingly hearing about businesses starting to get early returns. Next year will be an important litmus test for validating this trend."
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