Daly Warns Further Rate Hikes Possible if Shocks Persist

San Francisco Federal Reserve President Mary Daly expressed support for the recent September rate hike and hinted at the possibility of further increases. Speaking to Axios, Daly noted that additional rate hikes would depend on the persistence of external shocks such as tariffs, rising oil prices due to Middle East conflicts, and the impact of artificial intelligence (AI). She stated, "If the shocks that we've experienced... if they prove to be conventional shocks where they come, they go, and they have temporary effects, then we may not need more."

Daly highlighted that AI-driven demand for chips could contribute to inflationary pressures, while supply bottlenecks, especially those following the COVID-19 pandemic, have already driven up car prices due to chip shortages. These factors, she suggested, could keep inflation elevated and necessitate further tightening if they persist.

The Fed may observe these shocks diminishing within 1-3 years, but Daly emphasized the need for cautious monitoring. Meanwhile, the US Dollar showed strength against the Japanese Yen, reflecting broader market reactions to the Fed's stance on interest rates.