US market | Inflation, AI and workforce trends take center stage as the Fed’s Mary Daly outlines policy priorities

Mary Daly, president of the San Francisco Federal Reserve, said the U.S. central bank still needs to ensure inflation remains sustainably lower. She noted that while advances in artificial intelligence can help alleviate price pressures by increasing productivity, maintaining a modestly restrictive policy stance remains important, according to Reuters.Speaking at an event at San Jose State University organized by the Silicon Valley Leadership Group, Daly emphasized that policymakers should keep a close eye on the data to determine whether AI-driven investments translate into faster productivity growth without reigniting inflation.

She highlighted that current research to date shows limited macroeconomic evidence of significant AI-driven productivity growth, possibly because it is still early in the technology’s adoption cycle or because economy-wide transformations typically take time to materialize. Daly also noted that understanding the true impact of AI requires deeper analysis beyond the core data, including company engagement and industry-level developments.

Daly also drew parallels to the 1990s, when then-Fed Chairman Alan Greenspan looked beyond conventional productivity measures during the technology boom to avoid premature tightening, a period that ultimately saw strong growth alongside controlled inflation.

The Fed will need to assess whether stronger growth reflects healthy improvements on the supply side or signals rising inflation pressures that could warrant policy action, Daly said in a Reuters report. She underlined the importance of recognizing both what policymakers know and what remains uncertain when setting sustainable monetary policy.

On the labor market, Daly pointed to vulnerabilities such as concentrated job growth in a limited number of industries, warning that this could pose risks as conditions change. She also noted that business leaders are expressing cautious optimism about demand, even as consumers have drawn down their savings, especially among lower-income households.

Companies remain cautious about hiring as there is uncertainty about how long demand will remain high and how artificial intelligence could reshape employee needs. According to Daly, companies are waiting for a better understanding of how technology will impact operations before expanding payrolls. While she did not outline a specific near-term policy path, Reuters noted that Daly previously favored keeping interest rates stable while acknowledging arguments for possible rate cuts to support workers facing limited job opportunities and persistent inflationary pressures.

Daly’s comments indicate that the Federal Reserve continues to balance progress on inflation with evolving risks related to technology, growth and labor market dynamics.