Fed's Daly: Rise in long term yields is a global issue
In an interview with Bloomberg TV on Thursday, Federal Reserve (Fed) Bank of San Francisco President Mary Daly argued that the rise in long term Treasury bond yields is a global issue and added that she doesn't see the Fed's credibility at risk.
Key quotes
"Short term yields show markets understand Fed reaction function."
"Policy is in a good place, is watching markets."
"Modal outlook expects for inflation pressures to fade."
"Was very supportive of Fed's july interest rate hold."
"Recent jobs and inflation data have not changed outlook so far."
"Not seeing job market contributing to inflation right now."
"Early days to discuss treasury issuance patterns."
"Fed will find a way to achieve its policy goals."
"Fed really has to focus on achieving its inflation target."
"Job market is showing uncomfortable stability, don't see signs job market is faltering."
"Not seeing AI investment driving broader surge in inflation."
"We are still in a good place to watch the data."
"Fed missing its inflation goal by quite a bit."
Daly downplays long-end move, keeps Fed on data-dependent hold
Fed's Daly delivers a mildly less hawkish tone, with the 5.2/10 FXS Speechtracker score slipping slightly below the 5.5/10 historical average, signaling continuity rather than escalation in tightening bias. By framing the rise in long-term yields as a global issue that blunts the signal for the Fed, while stressing that short-term yields show markets understand the reaction function and that policy is "in a good place," Daly reinforces a data-dependent hold stance even as the Fed is still missing its inflation goal "by quite a bit." The emphasis on fading inflation pressures, an "uncomfortably" stable job market that is not seen as driving inflation, and no broad inflation surge from A.I. investment collectively point to patience on rates rather than imminent hikes.
The FXS Fed Sentiment Index fell by 1.85 points to 132.75, indicating a modest pullback in perceived hawkishness following the speech. Despite this decline, the index remains firmly in hawkish territory above 100, underscoring that the broader Fed narrative is still skewed toward tight policy even as Daly's remarks mark a slight softening relative to the established baseline.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
