Fed's Daly on Treasury Buybacks, Inflation, AI Demand

Summary

San Francisco Fed President Mary Daly says monetary policy is in a good place and the short end of the Treasury market is a better guide to the Fed's reaction function. She attributes the rise in long-end yields to global structural factors such as fiscal sustainability, geopolitical rebalancing, and AI-driven industrial investment. Daly sees AI demand as a strong positive signal but says broad inflation spillover has not yet appeared. She declines to draw policy implications from Treasury issuance questions.

• Daly says long-end yields are driven by structural factors, not mainly Fed policy.
• She sees the short end as more important for monetary policy calibration.
• Policy is in a good place with no urgent case for preemptive cuts or hikes.
• Markets appear to understand the Fed’s reaction function and are adjusting to data.
• AI investment is strong and affects long-dated yields, but broad inflation spillover is not yet visible.
• Labor market is stable in a low-hire, low-fire environment.
• She sees consumers as still spending but trading down and feeling more precarious.
• Treasury issuance questions are too early for her to judge.