Daly Sees AI-Driven Inflation Tilting Fed Toward Rate Hike
Key Facts
Mary Daly, president of the Federal Reserve Bank of San Francisco, indicated that further monetary policy tightening may still be needed, warning that inflation is spreading into services, where price increases are becoming more entrenched, according to a report dated Nov. 12. Assessing the AI sector, Daly said repricing of its stocks does not pose a risk to economic growth. Her assessment separates swings in company valuations from the productivity impact, which may become clearer over one to three years. Her stance comes as inflation remains elevated and after October data showed core prices continued to rise. Her remarks add a voice in favor of tighter policy to the debate within the Fed, without specifying the timing or size of another increase.
The U.S. consumer price index rose 0.4% in October from the previous month, after a 0.6% increase in September, the Bureau of Labor Statistics said. The core index, which excludes food and energy, rose 0.3% in October, the same monthly increase recorded in September and August. The core monthly increase holding at this level for three months means price pressures did not ease in the latest reading. In October, the shelter index rose 0.3% and accounted for more than 30% of the monthly increase in the overall index. The food index also rose 0.5% and the energy index 0.7%.
The Bureau of Labor Statistics was unable to publish year-over-year changes for October 2026 for some indexes that require a comparison with October 2025. The bureau said it did not collect survey data for that month because of a lapse in appropriations. The missing comparison-period data made it impossible to calculate year-over-year changes for those indexes. The published monthly readings for October remain available, including increases in the overall and core indexes. These constraints limit what can be inferred from the year-over-year comparison in this reading.
Daly told Reuters in an interview on Oct. 14 that further rate adjustments were “more likely than not,” but said their timing remained under discussion and there was no need to rush a decision given limited information. On Oct. 28, the Fed kept its target interest-rate range at 3.75% to 4%, in a decision approved by a 10-to-2 vote. Two members favored raising the range by a quarter percentage point. The committee’s statement described economic activity as expanding at a strong pace and productivity growth as strong, while inflation remained elevated, and reaffirmed its longer-run inflation goal of 2%. That places Daly’s remarks within a broader debate over balancing continued price pressures against strength in activity and productivity.
Price pressures are also evident in individual consumer items; the Associated Press reported that smartphone prices rose 1.4% between September and October, the largest increase recorded for that item. The report pointed to increases in streaming services, beef and auto insurance, alongside rising costs for chips, energy equipment and copper associated with data centers. In the Nov. 10 session, the S&P 500 fell 0.4%, the Dow Jones declined 0.3%, and the Nasdaq Composite lost 0.7% after the inflation report was released. These moves place the stock market’s reaction in the context of the data release, without determining the path of monetary policy on their own. Daly’s remarks and the price data remain part of the debate over persistent inflation and the cost of curbing it.
Attention now turns to October producer price data, which the Bureau of Labor Statistics is scheduled to publish on Nov. 13 at 8:30 a.m. Eastern Time. The reading will provide another indicator of price developments at the producer level after the consumer data. The Federal Reserve also plans to release minutes of the committee meeting held on Oct. 27 and 28 on Nov. 18 at 2:00 p.m. The minutes will detail discussions at the meeting that ended with the interest-rate range unchanged, with two members favoring an increase. These events come as investors watch for Fed signals on inflation and the timing of any subsequent rate adjustment.