Federal Reserve Monetary Policy: Mary Daly Says No Single Path

Federal Reserve Bank of San Francisco President Mary Daly said the central bank faces “no single most likely path” for Federal Reserve monetary policy as it weighs inflation risks against weaker or stronger growth. Speaking at the Economic Club of New York, Daly highlighted that today’s economy offers “multiple plausible narratives.” She framed the challenge as a trilemma: inflation control, maximum employment, and financial stability. Despite moderating consumer price inflation from 2023 peaks, inflation remains above the Fed’s 2% target, while labor-market data stays resilient with unemployment near historic lows. Key drivers of uncertainty include persistent services inflation, an unexpected acceleration in productivity growth, ongoing geopolitical risks to supply chains and commodities, and tighter financial conditions already limiting the need for additional hikes. Daly emphasized the Fed’s dual mandate and warned against both over-tightening (which could harm jobs) and under-tightening (which could entrench higher inflation expectations). She also pointed to prior forecasting errors—underestimating inflation persistence in 2021 and overestimating the damage from rate hikes in 2023—arguing the Fed needs “robust policy frameworks” instead of fixed plans. For markets, Daly’s message implies continued volatility and a shift toward scenario-based trading rather than relying on a clear rate-cut/rate-hike timeline. The baseline expectation discussed in the article points toward a next move that could be a cut, but Daly stressed the Fed must be prepared to react if incoming data contradicts that path. Overall, this outlook suggests Federal Reserve monetary policy decisions will remain highly data-dependent through 2025, with asset prices sensitive to rate expectations and shifting discount-rate assumptions.