Fed's Mary Daly Says Inflation Expectations Stable Despite Energy Surge

San Francisco Federal Reserve President Mary Daly said inflation expectations remain stable despite higher energy prices. The central bank must work on price stability “without overreacting” to the Iran conflict and trade tariffs, she said.

“There’s no indication yet that the surge in energy prices is driving medium- or longer-term inflation expectations higher,” Daly said in a Bloomberg TV interview on Thursday. She described current monetary policy as “slightly restrictive.” Wage increases are “consistent with the overall 2 per cent inflation target,” she said.

Producers and sellers remain hesitant to pass on higher prices, Daly said. That dynamic could help contain inflationary pressures. She cautioned that the US economy’s trajectory depends on how long the Iran conflict lasts. “If the conflict ends, prior positive dynamics could return,” she said.

Daly said the phrasing of the Federal Open Market Committee’s policy statement “is less important than the actions” of the rate-setting committee. The FOMC held rates steady at its April 30-May 1 meeting. Daly said the decision reflected consensus. “The real FOMC signal is everyone agreed to hold rates,” she said.

Individual policymaker speeches help “clarify how the FOMC could respond” to changing conditions, Daly said. Forecast scenarios “may aid communication of the rate outlook.” The Fed has emphasised data dependence and patience since it paused its rate-cutting cycle earlier this year.

Energy and inflation backdrop

Brent crude traded around $100.98 a barrel on Thursday. West Texas Intermediate was at $95.51. Both have been elevated for weeks because of the US military engagement in Iran. Gasoline prices have crossed $4 per gallon nationally, according to AAA data. Consumer confidence has declined since the start of the second quarter.

Bank of America this week projected mild stagflation for 2026. It cut its US growth forecast to 2.3 per cent and raised its inflation forecast to 3.6 per cent. The Labor Department reported that nonfarm payrolls declined by roughly 19,000 since April 2025. The trade deficit widened to $57.3 billion in February.

A federal trade court on Thursday struck down the president’s 10 per cent blanket tariff on most imports, ruling the White House had overstepped its authority. The administration is expected to appeal the decision.

What comes next

The Fed next meets on June 17-18. Markets expect the central bank to hold the federal funds rate at 4.25 to 4.5 per cent through the third quarter, according to CME FedWatch data. Policymakers are weighing persistent inflation against slowing growth.

Daly does not vote on the FOMC this year but participates in deliberations as a regional bank president. Her views are a bellwether for centrist opinion within the Federal Reserve system. She served as the Fed’s chief economist before taking the San Francisco post in 2018.

Investors will watch Fed Chair Jerome Powell’s post-meeting press conference on June 18 for signals about the rate path. The central bank has held rates steady since a 25-basis-point cut in March. Economists expect the next move to be a cut, but timing remains uncertain given the inflation data.